Australia’s central bank opted to maintain interest rates unchanged on Tuesday, aligning with market expectations, while emphasizing its willingness to consider various measures to manage inflation. This decision resulted in a slight reduction in the likelihood of a rate cut in November among investors.
At the conclusion of its August meeting, the Reserve Bank of Australia (RBA) retained the interest rate at a 12-year peak of 4.35%, underlining the necessity for policy to be adequately restrictive to steer inflation back toward the target range.
With core inflation stabilizing in line with expectations in the second quarter, and recent market volatility indicating a need for prudence in policymaking, market participants had anticipated a steady policy outcome.
Having hiked interest rates by 425 basis points (bps) since May 2022, the central bank grappled with the dilemma of whether the existing policy stance is sufficiently stringent, considering inflation stood at 3.8% in the last quarter, exceeding the target band of 2-3%.
While underlying inflation persisted at a notable 3.9% in the last quarter and is anticipated to decelerate at a more gradual pace than previously estimated, headline inflation is forecast to retreat into the target range early next year.
In contrast to the RBA’s approach, other central banks have already initiated interest rate cuts. The Federal Reserve is highly likely to decrease rates in September, while the European Central Bank and the Bank of England have already implemented monetary easing measures.
