AUSTRALIA’S central bank kept interest rates at a 12-year high as it awaits a shift lower in stubbornly sticky inflation before being ready to signal policy easing.
The Reserve Bank of Australia (RBA) held its cash rate at 4.35 per cent for a fifth straight meeting on Tuesday (Jun 18) and restated that it was not “ruling anything in or out”, a signal that a hike is not out of the question. The RBA’s goal is to slow consumer prices while holding onto significant job gains since the pandemic.
“While recent data have been mixed, they have reinforced the need to remain vigilant to upside risks to inflation,” the rate-setting board said. “The Board will rely upon the data and the evolving assessment of risks.”
The Australian dollar was little changed after the decision at 66.05 US cents. The yield on policy sensitive three-year bonds was also little changed while stocks remained higher.
Australia’s cautious stance puts it on the hawkish side of a diverging global policy outlook. The Bank of Canada lowered its benchmark rate by 25 basis points earlier in June, making it the first Group of Seven central bank to kick off an easing cycle. The European Central Bank soon followed while the Swiss National Bank made its move to cut in March.
By contrast, the Federal Reserve pared back projections for monetary easing and policymakers from Norway to New Zealand are also signalling – or likely to – that they are still not sufficiently convinced about disinflation to start cutting. In the UK, a looming election and lingering price pressures are adding to the case for the Bank of England – which meets on Thursday – to wait at least until August before lowering rates.
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RBA governor Michele Bullock has repeatedly pushed back against speculation of near-term easing, reflecting forecasts that inflation will only return to target in late 2025. Bullock has maintained maximum policy optionality this year, saying she needs to be confident that price growth is moving sustainably back to the 2 to 3 per cent target and signalling discomfort over inflation’s trajectory.
Since the RBA’s last meeting, data has shown the Australian economy remains weak. At the same time, the job market is still tight with unemployment at 4 per cent, generating optimism among policymakers that they can engineer a soft landing.
One of the unknown factors for the central bank is the impact of income-tax cuts and cost-of-living rebates on power bills to Australia’s 10.4 million households that begin on Jul 1. Economists say the measures will help shore up a weakening economy while Bullock said this month she didn’t anticipate the cash will have a material impact on the RBA’s inflation forecasts. BLOOMBERG
