SYDNEY (Reuters) – Australia’s central bank held interest rates steady on Tuesday as expected, while reiterating that it was not ruling anything in or out to control inflation, a result that led markets to slightly pare back the chance of a November rate cut.
Wrapping up its August policy meeting, the Reserve Bank of Australia (RBA) kept rates at a 12-year high of 4.35% and said policy would have to be sufficiently restrictive to ensure inflation returned to target.
Markets had wagered heavily on a steady outcome given core inflation had cooled as hoped in the second quarter, while recent wild swings in global markets argued for a cautious policy stance. [AU/INT]
“Inflation in underlying terms remains too high, and the latest projections show that it will be some time yet before inflation is sustainably in the target range,” the RBA Board said in a statement.
“Policy will need to be sufficiently restrictive until the Board is confident that inflation is moving sustainably towards the target range.”
The Australian dollar was little changed at $0.6506 and three-year bond futures held their gains at 96.48. Markets moved to slightly trim back the chance of a first easing in November to 68%, from 88% before the decision. 0#RBAWATCH>
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.
Underlying 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.
The RBA already trails other central banks in cutting interest rates. The Federal Reserve is almost certain to cut rates in September, while the European Central Bank and the Bank of England have already eased policy.
(Reporting by Wayne Cole and Stella Qiu; Editing by Kim Coghill)
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