The Reserve Bank of Australia (RBA) has left its cash rate unchanged at 4.10% following the latest meeting of the Bank’s Board, marking a fourth straight pause. The Australian dollar declined after the decision and fell to an 11-month low.
The decision to hold the cash rate was widely expected, with future markets pricing a pause at around 95% ahead of the decision. Nevertheless, the Australian dollar and Australian stock markets reacted negatively to the move.
Today’s meeting was the first chaired by new RBA Governor Michele Bullock. In her first monetary statement as governor, Bullock avoided any splashy headlines and kept to the script of the previous governor, Philip Lowe.
Bullock said that further rate hikes were on the table and that future rate decisions would depend on inflation and other key data. The statement noted that “the board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome.”
Inflation remains the RBA’s number one priority, and although the central bank opted to pause for a fourth straight time, the battle against inflation is far from over. The most recent consumer price index (CPI) rose to 5.2%, up from 4.9%, although the board noted that much of the increase was due to volatile items such as higher fuel costs. Still, inflation remains well above the RBA target range of 2%-3% and a final quarter-point hike before the end of the year is a strong possibility if inflation doesn’t show a significant decline.
Inflation Expectations
The RBA statement noted that inflation had peaked “but is still too high and remain so for some time yet” and held to its inflation projection that inflation would fall back within the 2%-3% target range in late 2025.
Australian Dollar Extends Losses, Stock Markets Fall
In the Forex market, the Australian Dollar has fallen sharply on Tuesday, a result of the RBA’s decision to hold rates as well as the US Dollar and US Treasury yields moving higher.
The Australian Dollar against the US Dollar has hit some headwinds, falling around 1.6% so far this week. The Australian dollar has declined 0.56% on Tuesday and dropped as low as 0.6305, its lowest level since 4 November 2022.
Equity markets are down sharply after the RBA pause, and the S&P ASX 200 stock market index is down 89.80 points (1.28%) at 6943.40.