Australian central bank holds rates steady for second month

SYDNEY: Australia’s central bank on Tuesday held interest rates at 4.1% for a second straight month, saying past increases were working to cool demand, but retained a warning that some more tightening might be needed to curb inflation.

Wrapping up its August policy meeting, the Reserve Bank of Australia (RBA) largely left its economic forecasts unchanged from the previous quarter, forecasting headline inflation would slow to around 3.25% by the end of 2024 and be back within its 2-3% target range by late 2025.

Markets had been leaning towards a pause, but economists were split on the outcome, with 20 out of 36 polled by Reuters expecting a hike and the rest forecasting the bank to stand pat. .

The Australian dollar extended earlier declines to be 0.9% lower at $0.6660, three-year bond futures rose 8 ticks to 96.22, and futures suspect that RBA’s tightening could be almost done, with some chance of one further hike left this year.

Governor Philip Lowe reiterated that the pause was to provide further time to assess the impact of the increase in interest rates to date and the economic outlook.

“The higher interest rates are working to establish a more sustainable balance between supply and demand in the economy and will continue to do so,” said Lowe.

“In aggregate, consumption growth has slowed substantially due to the combination of cost-of-living pressures and higher interest rates.”

Rates have climbed by 400 basis points since May last year, the most aggressive tightening campaign in the bank’s history.

In a relief to policymakers, headline inflation slowed more than expected in the second quarter, and rate hikes are working to slow consumer spending as retail sales suffered the biggest fall this year in June.

However, services inflation, including surging rents, is likely to be sticky, the labour market has defied expectations for a slowdown with the jobless rate staying near 50-year lows at 3.5%, and housing prices continued to climb in July, a positive wealth effect for consumers. – Reuters