Key Takeaways
- RBA raised the cash rate to 4.1% on a narrow 5:4 split decision; capacity pressures still a central concern.
- Westpac baseline: oil spikes to US$110/bbl, headline CPI peaks near 4.6%, then eases.
- Prolonged-disruption scenario: oil at US$130/bbl for three months, larger and more persistent inflation hit.
- Consumer confidence fell 4.9pts to 68.5pts — lowest since the March 2020 pandemic lockdowns.
- February employment surprised on the upside (+48,900) but unemployment ticked up to 4.3%.
Market UpdateRBA hike, narrow split, energy shock complicates the path
The Reserve Bank raised the cash rate to 4.1%, with a narrow 5:4 split decision, highlighting differing views within the Board. While all members agreed on the need to tighten policy, there was debate around the timing of the move.
Capacity pressures remain a central concern. The RBA continues to assess that the economy is operating close to its limits, with demand growth running above supply capacity. This assessment has not materially changed despite softer signals from consumption and labour cost data.
The Middle East conflict has added a new layer of risk. Rising fuel prices have already lifted near-term inflation expectations, which influenced the decision to hike. The Bank is also considering the possibility that prolonged high energy costs could feed more persistently into inflation.
The outlook for further rate hikes is less certain but still active. A follow-up increase in May remains a possibility, though not guaranteed. Future decisions will depend heavily on how the conflict evolves and its impact on inflation, growth and confidence.
Consumer ConfidenceConfidence falls 4.9pts to its lowest since March 2020
Energy Shock ScenariosWestpac modelling: how big could the hit be?
- The closure of the Strait of Hormuz has triggered a major energy shock, disrupting a key global oil and gas route.
- Baseline scenario: Oil spikes to ~US$110/bbl, with elevated LNG prices, before easing as shipping resumes.
- In the baseline, headline CPI rises by ~0.8 percentage points, peaking near 4.6%, with only modest flow-on to underlying inflation.
- Economic growth impact is limited in the base case, partially offset by stronger commodity export income.
- Prolonged scenario: If the shock lasts three months, oil could average US$130/bbl, pushing inflation higher for longer and reducing GDP growth more meaningfully.
Foreign ExchangeAUD steady as jobs data meets global uncertainty
- The AUD trading around US$0.704, recovering slightly after a recent decline.
- Labour market sent mixed signals: employment up 48,900 in February (well above expectations), but unemployment also rose to 4.3%.
- Despite the unemployment uptick, levels remain low historically — supports the view the economy can absorb higher rates.
- Markets divided on whether another hike could come as early as May.
- Higher energy prices could add to cost pressures on households and businesses.
Sources: Westpac Weekly (16 March), ABS, Macrobond, Westpac Economics, ANZ-Roy Morgan, Trading Economics. This summary is for informational purposes only and should not be considered financial advice.