According to Reuters, the Reserve Bank of Australia (RBA) opted to maintain interest rates at a 12-year high of 4.35 percent on Tuesday, marking six consecutive months of stability. Despite this prolonged period of status quo, the RBA offered a cautious stance regarding the possibility of imminent policy easing.
RBA Governor Michele Bullock acknowledged a reluctance to pursue further rate hikes, expressing hopes that the economy could withstand existing interest rates without additional pressure. However, she underscored the board’s readiness to adjust policy if service sector inflation persists at elevated levels, hinting at potential future shifts contingent upon economic indicators.
Financial markets, initially anticipating the likelihood of another rate increase following a higher-than-expected inflation reading in the first quarter, were surprised by Bullock’s dovish tone. This unexpected stance led to a decline in the Australian dollar’s value and a surge in bond futures.
Market expectations for additional rate hikes this year substantially diminished, with the probability of a September adjustment now standing at just 13 percent.
While some RBA economists forecasted inflation to increase and plateau around 3.8 percent for the remainder of 2024, the board ultimately concluded that current interest rates were adequate to achieve the target inflation range of 2-3 percent by late 2025.
This indicates the RBA’s prioritization of long-term inflation management over immediate economic growth.
