The Reserve Bank of Australia (RBA) kept interest rates on hold on Tuesday by leaving its cash rate target unchanged at 4.35%, in line with the market consensus. However, the bank cautioned that inflation remained uncomfortably high at 4.1% despite recent signs of easing. It could, therefore, consider a further increase in interest rates if necessary.
RBA keeps interest rates unchanged but warns of rate hikes if inflation remains stubborn
The RBA maintained its view on the inflation trajectory, expecting to achieve an annual target range of 2% to 3% by 2025, with a midpoint within that range expected only by 2026.
In the statement on its Monetary Policy Decision, the RBA stated:
The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome… The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks, and a further increase in interest rates cannot be ruled out.
The markets had anticipated a more dovish stance from the bank, given recent evidence of easing inflation and retail data showing a significant fall in consumer spending.
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However, the RBA said the labour market remained tight amidst “excess demand.” Further, it was concerned about the lags in the percolation of monetary policy into the economy.
The Australian Dollar posted a gain of 0.62% for 6 February, while the ASX 200 index of stocks fell 0.58%.
