The decision was taken at an RBA board meeting in Perth — the first time since before the pandemic that the bank had made it to the West — and governor Philip Lowe spoke at a dinner filled with business leaders to explain why the pause was so short.
“We have seen further evidence that the Australian labour market is still very tight, that services price inflation is proving to be uncomfortably persistent abroad, and that asset prices — including the exchange rate and housing prices — are responding to changes in the interest rate outlook,” he told the gathered crowd.
Mr Lowe was referring to March unemployment data, released in April, showing the jobless rate remained at near-a-50-year low of 3.5 per cent after more than 50,000 extra jobs were added to the economy.
The Australian dollar had been edging lower — sitting just above 66 US cents before the rates decision was announced — jumping to 67 US cents soon after. A lower dollar lifts import prices and, thus, inflation.
House price data released on Monday showed a second consecutive month of national gains, with the five biggest capitals all posting price rises in April, and the average of regional markets up too, albeit barely.
However, the coup de grace was last week’s inflation number for the March quarter.
Initially interpreted by a majority of economists as supporting at least another month or two on hold, the RBA was spooked by an acceleration in price rises for services, such as hospitality, healthcare and education.
“Goods price inflation is slowing, which is good news,” Mr Lowe said, “but services and energy price inflation is still high and likely to remain so for some time.
“Looking overseas, we see worryingly persistent services price inflation.
“It is possible that circumstances might be different here in Australia, but the experience abroad points to an upside risk, especially given the high degree of commonality across countries in inflation dynamics recently.”