The May board meeting of the RBA is historically one of the four months of the year in which the likelihood of a rate changes is highest. This is not to say every May meeting results in a rate change; May, along with February, August and November happen to be the four months of the year in which previous rate changes have typically occurred.
(79% correlation of RBA cash rate to U.S. federal funds rate, lagged by seven months.)
The RBA decided to hold Australia official cash rate steady at 1.50%, which is the lowest in the RBA’s history despite Australia not being in a recession or obviously heading into one. Cash futures imply very little chance of a change in any month this year, although there is a slight bias towards another 25bps reduction and the RBA’s decision to hold was greeting without surprise.
Very little of the statement changed between April’s board meeting and this one. The RBA still holds the view the “high and rising levels of indebtedness” of households will be addressed by macro-prudential measures. However, as Philip Lowe’s former colleague and co-author, Claudio Borio, said recently in an interview, relying exclusively on macro-prudential “levers” is a mistake. Central banks need to combine them “with monetary policy”, which means higher interest rates in this situation. So far the RBA has resisted moving the official interest rate higher, although commercial banks have increased some mortgage rates and tightened eligibility rules.