Due to continuous hikes, the Reserve Bank of Australia (RBA) paused all interest rates on Wednesday, an act in defiance of consensus expectations, but one that was easily predictable. This decision is a preventative move against rising unemployment and increasing household finances. The RBA suggested that the pause allowed time to better analyse interest rate data, creating a more sustainable economic balance between supply and demand for the country.
RBA intervenes: Aussie interest rates paused to review data
According to currency analyst Luca Santos at ACY Securities, the CPI forecasts predict an inflation decline to 3.25% by the fourth quarter of 2024. A reduction would ensure the decreased inflation target for the further quarter of 2025 is met. Although the change is barely discernible, it implies that the RBA and other financial authorities understand that the pace of inflation decrease needs rapidly speeding up if the 2025 target is to be met.
When focusing on the RBA’s data-conscious outlook, Santos stated:
“The RBA has shown elevated sensitivity to data, and I doubt this will change very soon: another high inflation read may well convince it to add a hike before the peak. My base case is still for one last 25bp increase to be delivered in September when electricity tariffs could deliver an inflation surprise.”
Santos indicates that the Australian dollar may underperform against the NZD until the RBA implements a final inflation hike.
Australia’s interest rates remain lower than other global powerhouses; the US has a rate of 5.25%; Canada has a two-decade record high rate of 5%; New Zealand’s rate remains at 5.5%.
