Reserve Bank of Australia Holds Interest Rates Steady

The Reserve Bank of Australia kept its interest rates unchanged on Tuesday, maintaining a commitment to reducing inflation, which it considers too high.

The RBA kept its official cash rate at 4.35% for the seventh consecutive meeting, as anticipated. While headline Consumer Price Index (CPI) inflation has eased, underlying inflation remains deemed “too high” by the bank.

Longer-term inflation expectations are still within the bank’s forecasts, and the RBA emphasized the importance of this status. Although inflation is expected to decline in the near term due to government support, the RBA does not foresee prices returning “sustainably” to its target range until 2026.

The central bank refrained from providing explicit indications regarding future interest rate changes, stating it is vigilant to potential upward inflation risks and ruling out any certainties.

The statement highlighted the board’s firm determination to restore inflation to target levels despite existing high CPI inflation rates. Recent data indicates that Australia’s job market has experienced significant growth for five consecutive months. While this labor market strength suggests economic resilience, it also points to persistent inflation in the near term.

Governor Michele Bullock has repeatedly cautioned that ongoing inflation could necessitate additional rate hikes from the central bank. Analysts at ANZ predict the RBA will maintain steady rates until at least the first quarter of 2025, noting that the potential for rate cuts may be postponed by persistent inflation and strong labor market dynamics.

Upcoming monthly CPI data is anticipated to show inflation falling within the RBA’s 2% to 3% target range, but with underlying inflation expected to stay elevated.

Following the RBA’s statement, the Australian dollar’s AUDUSD pair saw a slight increase, while the ASX 200 stock index remained negative.

Overall, the RBA stands out among global counterparts for its relatively hawkish stance on interest rates, even as the Federal Reserve and other leading banks initiate rate cuts.