Reserve Bank of Australia Maintains Rates, Highlights Persistent Inflation Risks

The Reserve Bank of Australia (RBA) kept rates unchanged during its policy meeting on Tuesday and ruled out the possibility of an interest rate cut this year.

The RBA maintained rates at a 12-year high of 4.35% for the sixth consecutive meeting, with policymakers highlighting the persistent risk of price pressure and expecting underlying inflation to gradually ease towards the central bank’s target.

The decision was widely anticipated, as core inflation cooled in line with expectations in the second quarter. However, recent volatility in global markets warranted a more cautious approach.

RBA Governor Michele Bullock, in her post-meeting speech, surprised markets by revealing that the bank’s board had discussed raising rates but ultimately decided that the current policy stance was appropriate. She emphasized that markets had prematurely priced in rate cuts as early as November.

Since May 2022, the RBA has raised interest rates by 425 basis points. Despite last quarter’s inflation running at 3.8%, above the central bank’s 2-3% target band, policymakers are evaluating if the current policy is sufficiently restrictive.

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