Australia’s c. bank holds rates steady

The Reserve Bank of Australia (RBA) maintained interest rates at a 12-year high of 4.35 per cent on Tuesday, but cautioned against expectations of imminent policy easing despite holding steady for six months, Reuters reported.

RBA’s Governor Michele Bullock acknowledged a desire to avoid further rate hikes, hoping the economy wouldn’t have to stomach higher interest rates.

However, she emphasised the board’s readiness to act if service sector inflation remains stubbornly high, indicating potential for future adjustments depending on economic data.

Financial markets anticipated the possibility of another rate rise after a higher-than-expected inflation reading in the first quarter.

However, Bullock’s dovish stance surprised investors, leading to a decline in the Australian dollar and a surge in bond futures.

The market’s expectation of another rate hikes this year dropped significantly, with the probability for September now at just 13 per cent.

While some RBA economists projected inflation to rise and stagnate around 3.8 per cent for the rest of 2024, the board ultimately judged that current interest rates were sufficient to achieve the target inflation band of 2-3 per cent by late 2025.

This suggests the RBA is prioritising long-term inflation control over short-term economic growth.