Australia’s central bank held interest rates steady on Tuesday, as expected, but warned there was still reason to be vigilant about inflation risks, leading markets to reduce the chances of a rate reduction this year.
At the end of its June meeting, the Reserve Bank of Australia (RBA) maintained its rates at 4.35%, their highest level in 12 years, i.e. since a November increase of Last year. She reiterated that she was not ruling out anything in terms of monetary policy.
Markets have been betting heavily on a stable result, even though the economy almost shut down in the first quarter and wage growth unexpectedly slowed, with still-high inflation preventing rate cuts in 2024.
“The economic outlook remains uncertain and recent data have demonstrated that the process of returning inflation to target is unlikely to be smooth,” the RBA board said in a statement, noting that revisions to consumption and the savings rate suggest that upward risks remain.
“While recent data has been mixed, it has reinforced the need to remain vigilant against the risks of rising inflation.
The Australian dollar was little changed at $0.6612 as the statement contained few surprises, while swaps slightly reduced the likelihood of a December rate cut to 55% from 65% before the decision.
Since the RBA’s last meeting, where Governor Michele Bullock said policy rates were already tight enough, data has been largely in line with expectations. The economy grew a meager 0.1% quarterly, while wage growth slowed from the highest levels in 15 years and the labor market continued to relax at a slow pace. .
Also expected, inflation has proven stubborn, reaching a record high of 3.6% in April, but there are hopes that cost-of-living relief measures taken by governments – including billions of discounts on electricity – will help bring down overall inflation in the second half of the year.
In Queensland, households will benefit from a $1,000 reduction on their electricity bill from July.
The Commonwealth Bank of Australia estimates that federal and state subsidies will reduce the third quarter Consumer Price Index (CPI) by two-thirds of a percentage point.
A majority of economists polled by Reuters expect the RBA to only cut rates in the final quarter of the year.
