Australia’s central bank says a short-term interest rate cut is unlikely, by Reuters

SYDNEY, Aug 20 (Reuters) – Australia’s central bank said a near-term interest rate cut was unlikely and policy may need to remain tight for an “extended period” to ensure inflation can be tamed , after debating whether or not to raise in August. policy meeting.

Minutes of the August 5-6 board meeting showed the Reserve Bank of Australia (RBA) considered raising its cash rate to 4.35% as core inflation remained too high, at 3.9%, and financial conditions appeared to have eased, with credit increasing. housing growth and prices.

However, it decided that the case for holding steady was the strongest as it would best balance the risks to both inflation and the labor market, given the prevailing uncertainty about staff forecasts, market volatility and expectations regarding the reduction of interest rates.

In particular, the board judged that market pricing for rate cuts next year, including a first easing by December, was inconsistent with a return of inflation to the midpoint of the 2-3% target band in 2026.

As a result, the RBA felt the need to play down talk of a short-term rate cut and could possibly hold rates steady for “an extended period”.

“Members also noted that holding the cash rate target constant at its current level for a longer period than currently implied by market prices may be sufficient to bring inflation back to target within a reasonable time frame, but that the board will need to reassess this likelihood in the future. meetings”, the minutes state.

The Board also emphasized that it is appropriate to continue to give somewhat greater weight than usual to the data flow, given the degree of uncertainty surrounding staff forecasts of spare capacity, unemployment and consumer demand.

The RBA has held interest rates steady for six consecutive meetings now, after raising them by 425 basis points to a 12-year high in May 2022.

Markets are betting there is an 84% chance the RBA will cut by the end of the year, and a cut in February is more than the full price.