Reserve Bank of Australia keeps rates unchanged and points on persisting inflation risk

Reserve Bank of Australia kept rates unchanged on policy meeting on Tuesday and ruled out the possibility of an interest rate cut this year.

The RBA held rates at a 12-year high of 4.35% for a sixth straight meeting and policymakers pointed to persisting risk of more price pressure, expecting underlying inflation to ease gradually towards the central bank’s target.

The decision was widely expected, as core inflation had cooled mainly in line with expectations in the second quarter, though recent wild swings in global markets argued for a more cautious stance

RBA Governor Michele Bullock, in her speech after the meeting, surprised markets in a way, saying the bank’s board had discussed raising rates at the meeting, but decided policy was in the right place for the time being.
She emphasized markets had got ahead of themselves in pricing in rate cuts for as early as November.

The RBA has raised interest rates by 425 basis points since May 2022, but with inflation – which ran at 3.8% last quarter – still above the central bank’s target band of 2-3%, policymakers pondered whether the current policy was restrictive enough.

Core inflation remained high at 3.9% last quarter and is now expected to slow more gradually than previously thought, the central bank said on Tuesday.
However, headline inflation is projected to dip back into the target band early next year thanks to the government’s energy rebates.