RBA Holds Key Rate at 13-Year High as World Waits on US Election
Australia’s central bank held its key interest rate at a 13-year high on Tuesday, aiming to keep up the pressure on stubbornly sticky inflation while joining much of the world in waiting for the outcome of US elections.
As expected, the Reserve Bank left its cash rate at 4.35%, marking a year at that level, and restated that it isn’t “ruling anything in or out” on policy. The RBA’s board highlighted the “high level of uncertainty” about the international outlook.
“The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome,” the rate-setting board said in a statement.
The Australian dollar was little changed at 65.92 US cents while yields on policy sensitive three-year bonds were also steady at 4.08% after the statement.
The governor will hold her post-meeting press conference at 3:30 p.m. Sydney time.
Governor Michele Bullock has repeatedly said the RBA’s board isn’t ready to cut rates yet, insisting inflation needs to be “sustainably” inside the 2-3% target before doing so. As a result, traders have pushed back their pricing for an easing to May 2025, from February previously.
While Australia’s core CPI has eased from its 2022 peak, at 3.5% it remains elevated and services inflation is still running strong. The RBA’s latest forecasts showed core inflation will hit its 2-3% target band in mid-to-late 2025, earlier than it estimated in August.
The RBA said its policy is still “less restrictive” than peers even after rate cuts overseas, highlighting its outlier status. The Federal Reserve — which also meets this week — the Reserve Bank of New Zealand and other major central banks have already embarked on rate reductions to either preserve the strength of their economies or revive growth.
Meantime, Donald Trump has been campaigning for a return to the White House on a protectionist platform that includes threats to place hefty trade tariffs on China. That could have spillover effects for Australia, given China is its largest trade partner.
Economic growth in Australia has decelerated sharply over the past year in response to tight monetary policy. Yet the labor market remains a bright spot with unemployment at a historically low 4.1%. That has given Bullock and her colleagues confidence in their ability to engineer a soft landing.
While the strong jobs market is supporting demand, economists say a dissonance in monetary-fiscal policy is making the RBA’s job harder.
Public expenditure in Australia is “running hot,” said Su-Lin Ong, chief economist at Royal Bank of Canada. “Government consumption demand is in our view consistent with only a modest easing cycle from the RBA in 2025.”
Fitch Ratings estimate the government’s budget will swing to deficit in fiscal 2025, reflecting tax cuts and cost of living support for households as well as a fall in the prices of Australia’s key exports. The ratings agency described the country’s fiscal policy as “modestly expansionary.”
The government has rejected suggestions its policies are helping fuel price growth.
Source : Bloomberg
