1 00:00:00,040 --> 00:00:03,360 S1: Any moment now. The RBA's official cash rate decision will 2 00:00:03,360 --> 00:00:06,720 S1: be handed down. Scott Phillips from The Motley Fool Fool.com. Oh, 3 00:00:06,960 --> 00:00:08,080 S1: good afternoon. Scott. 4 00:00:08,400 --> 00:00:09,840 S2: Michael. Good afternoon. 5 00:00:10,280 --> 00:00:12,799 S1: Uh, I guess you know, the the betting market, as 6 00:00:12,800 --> 00:00:15,920 S1: it were, uh, favoring a hike. Uh, but there's still 7 00:00:15,920 --> 00:00:18,759 S1: about a quarter of the pundits out there saying they 8 00:00:18,760 --> 00:00:22,560 S1: will hold and then no doubt hike in May. You 9 00:00:22,600 --> 00:00:24,040 S1: don't do predictions, do you? 10 00:00:24,160 --> 00:00:26,680 S2: No. Sorry, mate, I won't. I will tell you, 72% 11 00:00:26,680 --> 00:00:29,600 S2: is the odds. The bond market reckons, uh, will have 12 00:00:29,600 --> 00:00:31,400 S2: seen you before. I would increase rates if it's my decision. 13 00:00:31,400 --> 00:00:33,680 S2: That's not not a prediction. If I were sitting around 14 00:00:33,680 --> 00:00:34,920 S2: the table and asked me to put my hand up, 15 00:00:34,920 --> 00:00:36,680 S2: I would put it up. Not because I want rates 16 00:00:36,680 --> 00:00:39,480 S2: to be higher per se, but because higher inflation is 17 00:00:39,479 --> 00:00:42,560 S2: far more pervasive, far more damaging because the prices never 18 00:00:42,560 --> 00:00:44,400 S2: go back down. Rates go up and they will go 19 00:00:44,400 --> 00:00:46,519 S2: back down when the RBA feels it can afford to 20 00:00:46,560 --> 00:00:49,199 S2: cut them again. Uh, prices go up and they go 21 00:00:49,200 --> 00:00:51,520 S2: up and then they go up. Think about the compound inflation. 22 00:00:51,520 --> 00:00:54,920 S2: Over the last five years it has been extraordinary. So yes, 23 00:00:54,960 --> 00:00:56,800 S2: I would think it would if it was me put 24 00:00:56,840 --> 00:00:59,040 S2: rates up and that's exactly what the Reserve's done. The 25 00:00:59,040 --> 00:01:02,279 S2: statement just released now quote, at its meeting today, the 26 00:01:02,280 --> 00:01:05,400 S2: board decided to increase the cash rate target by 25 27 00:01:05,440 --> 00:01:11,080 S2: basis points to 4.1%, while inflation has fallen substantially since 28 00:01:11,080 --> 00:01:14,160 S2: its peak in 2022. It picked up materially in the 29 00:01:14,160 --> 00:01:18,160 S2: second half of 2025. Information since the February meeting suggests 30 00:01:18,160 --> 00:01:21,800 S2: that some of the increase in inflation reflects greater capacity pressures. 31 00:01:21,959 --> 00:01:23,920 S2: In addition, the conflict in the Middle East has resulted 32 00:01:23,920 --> 00:01:27,639 S2: in sharply higher fuel prices, which, if sustained, will add 33 00:01:27,640 --> 00:01:31,880 S2: to inflation. Short term measures of inflation expectations have already risen. 34 00:01:32,120 --> 00:01:34,440 S2: As a result, the board judged that there is a 35 00:01:34,440 --> 00:01:38,800 S2: material risk that inflation will remain above target for longer 36 00:01:38,800 --> 00:01:43,200 S2: than previously anticipated. End quote. So that's the that's the 37 00:01:43,319 --> 00:01:46,080 S2: what's interesting too, by the way, last statement. This is unusual. 38 00:01:46,120 --> 00:01:49,200 S2: They never pre or didn't previously provide the votes. They 39 00:01:49,200 --> 00:01:53,600 S2: say quote, today's policy was made by majority. Five members 40 00:01:53,600 --> 00:01:56,760 S2: voted to increase the cash rate target by 25 basis points. 41 00:01:56,760 --> 00:02:02,960 S2: Four members voted to leave the cash rate unchanged at 3.85%, 42 00:02:02,960 --> 00:02:06,720 S2: so A54 majority by the barest of margins. The interest 43 00:02:06,720 --> 00:02:08,760 S2: rate is going to increase the official cash rate by 44 00:02:08,760 --> 00:02:11,560 S2: 25 basis points to 4.1%. 45 00:02:12,000 --> 00:02:15,080 S1: It's interesting that statement. As you said, there was a 46 00:02:15,080 --> 00:02:19,040 S1: lot of preamble there about underlying issues within the Australian economy. 47 00:02:19,040 --> 00:02:22,320 S1: And then they said, in addition, conflict in the Middle East, 48 00:02:22,360 --> 00:02:25,080 S1: so on and so forth. So I mean, you know, Chris, 49 00:02:25,120 --> 00:02:27,560 S1: not Chris Bowen, but Jim Chalmers will no doubt come 50 00:02:27,560 --> 00:02:30,799 S1: out this afternoon and say, well, look, you know, it's unfortunate, 51 00:02:30,800 --> 00:02:32,839 S1: but we've got war in the Middle East, as we've 52 00:02:32,840 --> 00:02:35,440 S1: all seen petrol prices going through the roof. That's inflationary. 53 00:02:35,440 --> 00:02:37,760 S1: It's washing across the world. In other words, you know, 54 00:02:38,120 --> 00:02:41,560 S1: we're just a victim of circumstance. But the RBA, I 55 00:02:41,560 --> 00:02:45,959 S1: would argue almost political in that statement saying, well okay, yeah, 56 00:02:45,960 --> 00:02:49,520 S1: that's there. But uh, the first part of the statement, 57 00:02:49,520 --> 00:02:52,000 S1: as you read to me was all about the Australian 58 00:02:52,000 --> 00:02:53,239 S1: domestic context. 59 00:02:53,680 --> 00:02:56,880 S2: Yes, that's absolutely true. And that's they talk about greater 60 00:02:56,880 --> 00:02:59,359 S2: capacity pressures. In other words, what they're saying is demand 61 00:02:59,400 --> 00:03:02,880 S2: is growing. Supply simply cannot keep up. And then as 62 00:03:02,880 --> 00:03:05,040 S2: you say, in addition, as they say, conflict in the 63 00:03:05,040 --> 00:03:07,280 S2: Middle East has resulted in sharply higher fuel prices. I'm 64 00:03:07,280 --> 00:03:09,600 S2: sure it's the combination of the two. Yes, but it's 65 00:03:09,600 --> 00:03:12,200 S2: not just about fuel prices. And that is the key one. 66 00:03:12,560 --> 00:03:13,720 S2: As I said to you, as I started to say 67 00:03:13,720 --> 00:03:17,040 S2: before they announced it, uh, a 3.8% for three of 68 00:03:17,040 --> 00:03:19,600 S2: the last four months, if you targets two and a half, 69 00:03:19,639 --> 00:03:22,760 S2: that's 50% above your target. I mean, they're being honestly, 70 00:03:22,760 --> 00:03:24,640 S2: I think they're trying to do the right thing by 71 00:03:24,639 --> 00:03:27,280 S2: by home borrowers. They're trying to be kind. They're trying 72 00:03:27,280 --> 00:03:29,520 S2: to we talked about the the unemployment number. We've had 73 00:03:29,520 --> 00:03:33,799 S2: the lowest unemployment sustained now at around 4.1% for ages. 74 00:03:33,800 --> 00:03:35,880 S2: It was lower during the absolute, you know, the boom 75 00:03:35,880 --> 00:03:38,240 S2: years of Covid when inflation was 8%. But at any 76 00:03:38,240 --> 00:03:40,480 S2: point over the previous four decades, we would have killed 77 00:03:40,480 --> 00:03:43,240 S2: for 4.1%. And so I think the RBA has said, well, 78 00:03:43,240 --> 00:03:45,640 S2: hang on, if we could keep unemployment low and if 79 00:03:45,640 --> 00:03:48,360 S2: we could get prices down, we'd love to do both. 80 00:03:48,360 --> 00:03:51,280 S2: I think it's probably I won't say a fool's errand, 81 00:03:51,280 --> 00:03:54,360 S2: but it's probably a bit ambitious either way. I think 82 00:03:54,360 --> 00:03:56,480 S2: they've said, well, we'll we'll leave it as long as 83 00:03:56,480 --> 00:03:59,440 S2: we possibly can. Today feels like the straw that broke 84 00:03:59,480 --> 00:04:01,760 S2: the camel's back. As you say, the combination of the 85 00:04:01,760 --> 00:04:06,040 S2: capacity pressures domestically and international fuel prices. But as I said, 86 00:04:06,040 --> 00:04:08,480 S2: decisions five four in favour of a rate increase. It 87 00:04:08,480 --> 00:04:09,960 S2: was a very, very close run thing. 88 00:04:10,000 --> 00:04:13,120 S1: Sure. Now, is that indicative of what's likely to be 89 00:04:13,120 --> 00:04:15,680 S1: the decision in May, or do you think a number 90 00:04:15,680 --> 00:04:18,679 S1: of the four that were saying not now were saying 91 00:04:18,720 --> 00:04:20,560 S1: we'll do it in May? I mean, it's hard to tell, 92 00:04:20,600 --> 00:04:22,320 S1: but what's your prediction there? 93 00:04:22,400 --> 00:04:25,279 S2: That's a really good question. I suspect they actually you don't. 94 00:04:25,400 --> 00:04:27,279 S2: I think those people will say we didn't need one 95 00:04:27,279 --> 00:04:29,400 S2: yet and now we've done it. That might be enough. 96 00:04:29,600 --> 00:04:32,480 S2: I suspect whatever expectation there was of a two in 97 00:04:32,480 --> 00:04:33,960 S2: a row would be correct to be three in a row, 98 00:04:33,960 --> 00:04:36,320 S2: because I went in February, of course. The third one 99 00:04:36,320 --> 00:04:39,200 S2: is probably less likely now than it might have been 100 00:04:39,240 --> 00:04:41,480 S2: had this been a unanimous decision. If they'd all said, yep, 101 00:04:41,480 --> 00:04:43,120 S2: we all think it should be, it would have said 102 00:04:43,120 --> 00:04:45,359 S2: pretty clear. The Reserve's worried that we need to go now. 103 00:04:45,640 --> 00:04:49,280 S2: Those who wanted to wait because the RBA hasn't waited 104 00:04:49,279 --> 00:04:52,240 S2: will probably, I suspect, think, okay, well now that's done. 105 00:04:52,240 --> 00:04:54,680 S2: We don't need to go in May unless things get worse. 106 00:04:54,960 --> 00:04:58,440 S2: So probably alleviates slightly the odds of a of A 107 00:04:58,480 --> 00:05:01,160 S2: may increase, but that's only in the context of not 108 00:05:01,160 --> 00:05:03,680 S2: knowing what data comes next. I suspect the next six 109 00:05:03,680 --> 00:05:05,000 S2: weeks will tell us a whole lot more about what 110 00:05:05,000 --> 00:05:06,520 S2: they have to do when they meet next time. 111 00:05:07,040 --> 00:05:09,960 S1: Well, Rufus in the background isn't happy, that's for sure. Sorry, but. 112 00:05:12,440 --> 00:05:14,960 S1: He's barking on behalf of the, uh, the mortgage holders 113 00:05:14,960 --> 00:05:17,640 S1: out there, I can tell you. Alright, well, we'll speak, uh, 114 00:05:17,680 --> 00:05:20,520 S1: the markets and everything tomorrow. Scott, I appreciate that. Thank you. 115 00:05:20,560 --> 00:05:22,559 S1: Scott Phillips here with the breaking news from The Motley 116 00:05:22,560 --> 00:05:27,320 S1: Fool Fool.com. It's up half a quarter of 1%, I 117 00:05:27,320 --> 00:05:31,920 S1: should say quarter of 1% from 3.85 to 4.1.