Monetary policy: a May cut on the cards

Cutting to the chase with today's RBA decision on monetary policy ...

The Board eased monetary policy late in 2011. Since then, its judgement has been that, with growth expected to be close to trend, inflation close to target and lending rates close to average, the setting of monetary policy was appropriate. The Board's view was also that, were demand conditions to weaken materially, the inflation outlook would provide scope for easier monetary policy. At today's meeting, the Board judged the pace of output growth to be somewhat lower than earlier estimated, but also thought it prudent to see forthcoming key data on prices to reassess its outlook for inflation, before considering a further step to ease monetary policy.

There is no rocket science here. The RBA thinks demand is weaker than it originally anticipated. It is inclined to prescribe a cut in official interest rates, however, it wants to check the inflation pulse before doing so.

The next print of the Consumer Price Index will be on 24 April. If core inflation remains well below the 3% target ceiling, we can expect a cut to the RBA target rate on the first Tuesday in May.

The next print in the Monthly Labour Force series will be on 12 April. This print is unlikely to present reasons not to cut the target rate in May.