Australia's central bank kept interest rates unchanged at its first meeting of a revamped policy schedule and signaled a higher bar for additional tightening as inflation slows further.
The Reserve Bank maintained its cash rate at a 12-year high of 4.35% as predicted by economists on Tuesday. RBA Governor Michele Bullock will be questioned on the topic by journalists at her inaugural post-meeting press conference at 3.30 p.m. in Sydney.
"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," the rate-setting board said in its post-meeting statement. "A further increase in interest rates cannot be ruled out."
The currency strengthened slightly and the policy-sensitive three-year government bond yield climbed to 3.73%.
The RBA also released its quarterly forecasts which showed core inflation will only hit the midpoint of its 2-3% target band in 2026. The measure, which smooths volatile items, came in at 4.2% in the final three months of 2023.
The extended timeframe for core inflation to return to target suggests the RBA will stick to its view that rates need to remain at elevated levels for some time, according to money markets and economists.
Underlining that, rates traders expect the RBA to hold off policy easing until September while they are certain the Fed will cut at least once by June. Australia's central bank is expected to carry out two quarter-point reductions this year, while the Fed is seen delivering at least four cuts.
The RBA moved cautiously during its tightening campaign — its 4.25 percentage points of hikes was 1 point less than the US and New Zealand delivered. Another reason for expectations the RBA will be slower on the way down is the disinflation impulse so far in Australia is weaker than elsewhere, with productivity growth among the weakest in the developed world.
At the same time, Australia's labor market remains solid and the economy has shown resilience to higher borrowing costs, suggesting there's no urgency to shift quickly to easing. Moreover, policymakers won't want to further fuel house prices that have been driven up by a supply shortage and high immigration.
Source : Bloomberg
