Australia’s central bank kept its cash rate unchanged at 4.35% for a second consecutive meeting on Tuesday but warned that another increase could still be needed to bring inflation under control.
Reserve Bank of Australia (RBA) Governor Michele Bullock said the board discussed a rate hike at its August meeting, with policymakers weighing the impact of renewed tensions in the Middle East and the resulting risks from higher energy prices.
“And we will go again if we need to. And I think personally that it is quite possible we might need to go, but we will wait and see what the data tells us,” said Bullock.
The RBA has already raised rates by 75 basis points this year, fully reversing the amount of monetary easing delivered in 2025 as it attempts to contain persistent inflationary pressures.
Markets had largely expected the central bank to hold rates after second-quarter inflation came in below forecasts and the housing market showed signs of a sharper slowdown than policymakers had anticipated.
However, the RBA maintained that aggregate demand needs to remain subdued to ease capacity pressures and said it would increase the cash rate further if upside risks to inflation materialise.
The central bank’s latest forecasts show inflation easing to 3.6% by the end of this year from 3.9% in the second quarter before falling to 2.6% by the end of 2027. Inflation is expected to return to the RBA’s 2% to 3% target band in the second half of next year.
The Australian dollar was little changed at US$0.7055 following the decision while three-year government bond yields rose two basis points to 4.572%.
Markets now price in about a 50% chance of a rate increase in November and an 80% likelihood of a hike by early next year.
Higher borrowing costs have already cooled Australia’s housing market, with weaker auction clearance rates, fewer loan applications and softer sales pointing to tougher conditions ahead.
However, consumer spending remains relatively resilient and the labour market continues to generate jobs, while the renewed Middle East conflict has added another source of concern for policymakers through the potential pass-through of higher oil prices.
EY Oceania chief economist Cherelle Murphy said the decision should not be viewed as an all-clear on inflation, warning that further tightening could still be needed if price pressures prove more persistent than the RBA expects.
Reuters
