The RBA’s statement was hawkish in tone, noting that “the decline in underlying inflation has slowed” and that private demand was a bit stronger than expected. Members felt it was “appropriate to remain cautious”, which is perhaps the most important takeaway of the meeting, as the economic outlook is uncertain and this is an obstacle to continuing to lower rates. Today’s decision is consistent with the RBA’s “gradual approach” to lowering interest rates – the central bank has cut rates three times this year, which indicates a cautious rate path. We can expect the RBA to make future rate decisions based on the data.
Easy Decision for the RBA
With inflation showing signs of slowing down and domestic demand holding up, today’s decision to maintain interest rates was an easy one for RBA policymakers. The next meeting on November 4 is likely to be more dramatic. The central bank would like to cut rates and help support the labor market, but the cautious RBA will have to see further evidence that inflation is moving lower. The third-quarter inflation report ahead of the rate meeting will be a critical factor as to whether the RBA delivers a quarter-point cut or hold rates until 2026.
The US tariffs, which have caused massive uncertainty in the global financial markets and caused significant disruption in global trade, continues to worry the RBA. The tariffs have already dampened global growth and raised inflation. The trade war between China and the US continues although trade talks are ongoing. China is Australia’s number one trading partner and the trade war has dampened China’s economy, which means less demand for Australian exports.
Australian Dollar Higher After Rate Decision
The AUD/USD currency pair has extended its gains on Tuesday and climbed by close to 1% this week. The Australian dollar is currently trading at 0.6606, up 0.44% on the day. Today’s rate decision, which was a hawkish hold, has given a boost to the Australian dollar.
Stock Market Shows Limited Movement
The S&P ASX 200 stock market index, Australia’s benchmark stock index, showed little movement on Tuesday. The index closed at 8,849, down 14 points (0.16%).