RBA April Minutes defer to May

Taylor Nugent | Markets Research

Key points:

• The April meeting predated the 2 April US reciprocal tariff announcement
• May, with more data, new forecasts, and more clarity on trade policy, was ‘opportune time to revisit the monetary policy setting’
• Members acknowledged that it is important for monetary policy to be forward-looking
• But RBA still inconclusive on directional impact of higher trade barriers on Australian inflation
• There are still 5 weeks until the RBA’s May 20 meeting, and another 7 weeks from then until the July 8 meeting.

Detail:

Overall, the April Minutes do little to elucidate the outlook. There was not enough new information between February and April to consider adjusting policy again, and the Board instead pointed to May as “an opportune time to revisit the monetary policy setting” with more information on domestic data, new forecasts, and “the likely evolution of global trade policies”.

Domestic data was deemed to be evolving in line with their February assessment and domestic risks remained two sided. In contrast, risks from the global backdrop had increased and were tilted to the downside (ahead the April 2 escalation in US tariffs, policy uncertainty, and financial market volatility). For Australia, the Minutes note downside risk to growth but that business sentiment outside of companies exporting to the United States had not (yet) adjusted downwards.

The Minutes repeated the messaging that monetary policy was ‘well placed’ to respond if needed and added that “it was possible to envisage circumstances in which the impact was significant, and members acknowledged that it is important for monetary policy to be forward-looking.” That said the RBA would likely need to build comfort on the inflation implications of higher trade disruption to move pre-emptively. As of the April meeting, they remained inconclusive, noting channels operating in both directions. In contrast, the RBNZ met last week, after the marked escalation in trade policy and uncertainty, and concluded that “on balance, these developments create downside risks to the outlook for economic activity and inflation in New Zealand.”.

Members judged that risks emanating from the domestic economy “had not changed materially since the previous monetary policy meeting.” Those were two sided. They remained concerned that the tight labour market and strong growth in unit labour costs could have a more pronounced effect on inflation than anticipated, but also observed “the degree of tightness in the labour market was still uncertain.” We discussed the RBA’s assessment of full employment in detail in ‘RBA not yet convinced on lower NAIRU’.

NAB’s view is that higher barriers on US trade and elevated policy uncertainty put net downward pressure on both growth and inflation in Australia. The RBA is well placed to respond to the shift in the balance of risks and be proactive in offsetting more material headwinds to growth. We expect the RBA will move policy to a neutral setting more quickly and ultimately take rates modestly accommodative. There are still 5 weeks until the RBA’s May 20 meeting, and another 7 weeks from then until the 8 July meeting.

Uncertainty is exceptionally elevated and there is a wide error bound around forecasts in this environment but specifically, we expect the RBA to cut by 50bps in May, followed by 25bps in July, August, November and February. That would take policy rates to 2.6% through much of 2026. We retain our view that absent new shocks, rates will settle in the low 3s (3.1%) longer term, seeing the visit below 3% as only temporary. See NAB Monetary Policy Update.

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