Reserve Bank of Australia keeps cash rate at 4.35%

Created on September 24, 2024

RBA leaves cash rate unchanged

The Reserve Bank of Australia kept the cash rate at 4.35% at today’s meeting. This was the seventh consecutive time the central bank has kept interest rates at a 12-year high. The decision was weighed down by markets and the reaction of the Australian dollar was muted.

RBA statement says inflation is still too high

The RBA statement noted that inflation had fallen substantially but was “above target and proved persistent” and that bringing inflation back to the 2%-3% target range remained “the highest priority”. The statement said the economic outlook was “highly uncertain”, noting that second-quarter GDP was weak and there were uncertainties about the global economy, such as the slowdown in China, which had affected commodity prices.

Governor Bullock said in the press conference after the meeting that the central bank is unlikely to cut interest rates in the “near term”. She emphasized this point before and when she defined the “near term” as a six-month period. Significantly, Bullock said the RBA did not consider raising rates at today’s meeting. In previous meetings, the RBA has looked at the possibility of a rate hike, which could indicate a slight change in stance.

The RBA remains an outlier among the major central banks, which, with the exception of the Bank of Japan, have largely embarked on a rate-cutting cycle in response to falling inflation. In a strange twist, today’s rate announcement comes a day before the August inflation report. Inflation is expected to ease to 2.7%, compared to 3.5% in July. If inflation falls as expected or declines, it will provide strong support for the rate cut case at the next meeting on November 5.

Aussie dollar stocks show little reaction to RBA

The RBA’s decision to keep rates on hold was widely expected by markets, with the Australian dollar and Australian stock market flat following the announcement.

The Australian dollar was down 0.16% against the US dollar on Tuesday, trading at 0.6827 in the European session. Today, the Australian dollar rose to 0.6869, its highest level this year.

The S&P ASX 200, Australia’s benchmark stock index, showed limited movement on Tuesday. The index fell by 10.90 points (0.13%) and closed at 8,142.

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