Australia's central bank kept its key interest rate steady at 4.35%, the highest level in 12 years, as widely expected by analysts. The decision, made by the Reserve Bank of Australia (RBA) under Governor Michele Bullock, reflects a cautious stance amid global shifts in monetary policy. While many central banks, such as the Fed, are easing their policies in response to cooling inflation—most recently with a 50 basis point rate cut—the RBA remains focused on controlling domestic inflationary pressures.
The last adjustment to the cash rate in Australia occurred in November 2023, when it was raised by 25 basis points, bringing it to the highest level since late 2011.
Despite growing international trends toward rate reductions, Australia is becoming an outlier, choosing to hold its rates steady. The RBA’s decision comes as inflationary risks remain more persistent in Australia, fueled by a tight labor market and a surge in migration that is driving up costs in sectors like housing and childcare.
Australia’s economic context is further complicated by slow growth in recent quarters, a situation worsened by a slowdown in China, the country's largest trading partner. The elevated borrowing costs have placed a strain on Australian consumers, while an appreciating Australian dollar, driven by divergent central bank policies globally, threatens to make exports less competitive.
The RBA emphasized the importance of staying vigilant to inflation risks, stating that policy will remain restrictive until there is confidence that inflation is moving sustainably toward the target range. Governor Michele Bullock has also indicated that a rate cut is unlikely in the near future, despite ongoing deflationary forces abroad, as domestic price pressures persist. Economists are now debating how long Australia can maintain this approach as international conditions continue to shift.