The Reserve Bank of Australia held interest rates steady on Tuesday as inflation eased in recent months, but said that more rate hikes may still be required, given that inflation remained “too high.”
The bank kept its cash rate target at 4.10%, ducking some expectations for a 25 basis point hike. Tuesday now marks the second straight month the RBA has kept rates steady after raising them by 400 bps over the past year.
Still, RBA Governor Philip Lowe said that Tuesday’s decision was also intended to wait and see how economic growth and inflation play out amid high interest rates, and that “further tightening of monetary policy” may still be in order.
“Services price inflation has been surprisingly persistent overseas and the same could occur in Australia,” Investing.com quoted Lowe saying in a statement.
While inflation eased this year – more than expected in the second quarter – it still remained well above the RBA’s 2 to 3% annual target range. The bank stuck to its earlier forecast for inflation to fall within the target range only by late-2025.
The bank also reiterated its warning that economic growth is expected to cool in the coming years, while unemployment is also expected to increase by at least 1% by end-2024.
Australia’s labor market has been among the key sources of inflationary pressures over the past year, with increased vacancies and labor shortages keeping services inflation levels high.
Wage growth is also expected to pick up with tighter labor conditions.
The Australian dollar slid 0.8% after the RBA decision, given that it disappointed some traders betting on a hike. A hot labor market has been one of the key drivers of expectations for a rate hike from the RBA.
On the other hand, Australia’s ASX 200 index shot up on the prospect of an extended pause in future hikes.
