Australia's Reserve Bank (RBA) held its cash rate steady at 4.35%, in line with expectations, reaffirming the need for restrictive policy until core inflation shows sustained reduction. This decision extends the rate’s decade-high position over the past year, as the RBA remains cautious, refraining from suggesting future policy directions.
In its quarterly Statement on Monetary Policy, the RBA highlighted persistent inflationary pressure, anticipating that underlying inflation will gradually ease to 3.4% by the end of 2024, down slightly from 3.5% in the previous quarter. However, this remains above the bank’s 2-3% target. The RBA forecasts inflation will align with the target range by late 2025.
The statement also reported a robust labor market, with a projected employment growth rate of 2.6% by year-end, though the jobless rate could rise to 4.5% by late 2025. Financial conditions, while tight, are less restrictive than in many other developed economies. The RBA expects economic growth to slow to 1.5% by year-end, with a gradual return to a trend rate of 2.25% in the coming years.
Looking ahead, the RBA’s inflation and growth projections were based on market pricing which assumed interest rates would stay at 4.35% until the middle of 2025, before hitting 3.5% by December 2026.