Australians will experience a calendar year of unchanged interest rates after the Reserve Bank of Australia held the cash rate steady, as widely expected.
The key interest rate has been unchanged at 4.35 per cent since November 2023, and will remain there until at least November 5 when the central bank’s board next meets.
Economists almost universally predicted the RBA would keep the rate on hold on Tuesday, despite its US counterpart the Federal Reserve kicking off its monetary easing cycle with a bumper 50 basis point cut.
But the economic imperatives of the two institutions are very different.
While inflation in the US has eased to within reach of the Fed’s target, the RBA remains concerned more work needs to be done to bring price growth to heel.
Underlying inflation is still worryingly high at 3.9 per cent, while the Australian labour market remains in rude health with unemployment at a relatively low 4.2 per cent and participation at a record high.
In its monetary policy statement, the Reserve Bank board maintained its hawkish tone and said it would not rule anything in or out in its fight against inflation.
“While headline inflation will decline for a time, underlying inflation is more indicative of inflation momentum, and it remains too high,” the statement said.
“Policy will need to be sufficiently restrictive until the Board is confident that inflation is moving sustainably towards the target range.”
The board still predicts inflation to return to the target range of two to three per cent in late 2025.
“The board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome,” it said.
Tim Lawless, Research Director at CoreLogic Asia Pacific, said the decision to keep rates steady implies the RBA is satisfied with the gradual downward trajectory of inflation.
“Overall, the hold decision could provide a boost to consumer sentiment, as more households firm up their opinion that rate hikes are over and the next move from the RBA will be a downwards one,” he said.
“The only uncertainty at the moment is the timing and speed of rate cuts.”
