Reserve Bank of Australia leaves rates at multi-year high but with less hawkish than expected stance
The Reserve Bank of Australia kept rates at a 12-year high of 4.35% at the end of two-day May policy meeting, surprising markets with less hawkish than expected stance, as many expected signals for another rate hike.
RBA Governor Michele Bullock said that interest rates were at the right level after holding steady for a sixth month, but warned of elevated inflation risks which signal that any action in easing monetary policy in the near future is very unlikely.
On the other hand, the policymakers did discuss raising interest rates, but believed that monetary policy was already restrictive enough to bring inflation back to the bank’s target band of 2-3% by late 2025, and at the end sidelined expectations for further tightening for now.
However, the RBA stressed its readiness to act anytime if conditions in the economy deteriorate due to high borrowing cost.
Inflation in Australia slowed less than expected in the first quarter, highlight strong challenges for the central bank, while recent labor market data confirmed only a gradual loosening, with the jobless rate at 3.8% in March.
RBA economists forecasted that inflation is expected to pick up from 3.6% in the first quarter, to 3.8% and stay there until the end of the year, even assuming no rate cuts until mid-2025.
However, the RBA faces similar problems like the other major central banks, which are also struggling in their attempts to get inflation back to target that lately complicated the outlook for eventual rate cuts.