RBA Leaves Cash Rate Unchanged
The Reserve Bank of Australia maintained the cash rate at 4.35% at today’s meeting. This was the seventh straight time that the central bank has held rates at a 12-year high. The decision had been priced in by the markets and the Australian dollar’s reaction has been muted.
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RBA Statement Says Inflation Still Too High
The RBA statement noted that inflation has fallen substantially but was “above target and proving persistent” and that bringing inflation back down to the 2%-3% target range remained its “highest priority”. The statement said that the economic outlook is “highly uncertain”, noting that second-quarter GDP was weak and there are uncertainties about the global economy well, such as the slowdown in China which as hurt commodity prices.
Governor Bullock stated in her press conference after the meeting that the central bank is unlikely to lower interest rates in the “near term”. She has made this point before and at the time she defined “near term” as a six-month period. Significantly, Bullock said that the RBA did not consider hiking rates at today’s meeting. In previous meetings, the RBA looked at the possibility of hiking rates, which could point to a slight shift in stance.
The RBA remains an outlier among major central banks, which, with the exception of the Bank of Japan, have mostly started a rate-cutting cycle in response to falling inflation. In an odd twist, today’s rate announcement comes a day before the August inflation report. Inflation is expected to fall to 2.7%, compared to 3.5% in July. If inflation does fall as expected or lower, it will provide strong support for the case to lower rates at the next meeting on November 5.
Australian Dollar Stock Markets Show Little Reaction to RBA
The RBA decision to maintain rates was widely expected by the markets and the Australian dollar and Australian stock market remained steady after the announcement.
The Australian Dollar against the US Dollar is down 0.16% on Tuesday, trading at 0.6827 in the European session. Earlier today, the Australian dollar rose as high as 0.6869, its highest level this year.
The S&P ASX 200 stock market index, Australia’s benchmark stock index, showed limited movement on Tuesday. The index declined 10.90 points (0.13%) and closed at 8,142.
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