The RBA's stance weighed on the Australian dollar, while analysts said the inflation spike in the future would still force the central bank to raise interest rates more quickly.
The Australian dollar weakened to a low of 0.7100 against the US dollar in today's Asian session (15/February). The neighboring currency pair AUD/NZD also declined by around 0.3 percent from its highest peak since June 2021. Not only due to turbulence in global risk sentiment, but also the dovish attitude of the Australian central bank (RBA).
The release of the minutes of the latest monetary policy meeting shows that the RBA is not yet in the mood to discuss a rate hike in the near term. The RBA's stance weighed on the Australian dollar, while analysts said the inflation spike in the future would still force the central bank to raise interest rates more quickly.
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| AUD/USD Daily chart via TradingView |
RBA Governor Philip Lowe said last week that a rate hike could take place later this year, if the economy continues to outperform expectations. However, commitments around interest rates have not been seen in the minutes of the RBA meeting on February 1, 2022.
"The Board stands ready to be patient while monitoring how the various factors influencing inflation in Australia develop (going forward)," the minutes said.
The minutes showed that the meeting participants did not fully believe that inflation acceleration would take place in a sustainable manner. They want to see further wage growth first, then start discussing the prospect of a rate hike.
Gareth Aird, chief Australian economist at CBA, said the RBA was underestimating inflationary pressures. He expects core inflation to jump 1.2% in the first quarter of 2022, bringing the annual pace to 3.5%. This figure is higher than the RBA's current inflation projection, which only peaked at 3.25% in the second quarter of 2022.
"Our expectation is that the RBA will shift to an explicit (rate) upward bias at the May Board meeting, following a major shock to underlying consumer inflation (data)," Aird said.
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