Reserve Bank of Australia holds cash rate at 4.35%

The Reserve Bank of Australia (RBA) kept its cash rate target unchanged today at 4.35%, maintaining its dovish stance on inflation while acknowledging economic uncertainties. This decision was widely expected by market participants, as described and anticipated in the Babypips.com Event Guide.

Key points from the RBA statement:

• Inflation remains above target and is proving persistent
• Current forecasts do not see inflation returning to target sustainably until 2026
• GDP data for the June quarter confirmed weak growth
• Labor market conditions remain tight, despite some signs of gradual easing
• The Council remains resolute in its determination to return inflation to target

Link to September RBA Statement

In its statement, the RBA pointed out that “Inflation remains above target and is proving persistent.” The board noted that while inflation has fallen substantially from the 2022 peak, it is still “well above the midpoint of the 2-3% target range”. The average weighted measure of core inflation was 3.9% over the year to the June quarter.

The central bank highlighted ongoing economic uncertainties, including the lagged effects of monetary policy, firm pricing decisions, wage responses and geopolitical factors. Despite these concerns, the RBA said its current policy stance is “tight and working broadly as expected”.

At the following press conference, RBA Governor Michele Bullock underlined the Board’s commitment to reducing inflation: “Sustainably returning inflation to target within a reasonable timeframe remains the Council’s highest priority. This is consistent with the RBA’s mandate for price stability and full employment.”

She also noted that the economic outlook is uncertain, as is achieving the disinflation target without causing a recession, so for now, the RBA is prepared to adjust policy in either direction if necessary.

Market reactions

AUD chart overlay against major currencies by TradingView

The initial reaction to the RBA’s decision saw the Australian dollar strengthen across the board. This “buy the fact” response probably reflected The market’s interpretation that the RBA’s persistent focus on inflation and its reluctance to signal any near-term easing was a bit more unhinged than anticipated.

Selling pressure emerged during the press conference, possibly a combination of net negative comments from the RBA governor on productivity concerns and subdued GDP growth and/or possibly reactions to comments that interest rate hikes have not were taken into account this month. meet.

Whatever the case for the dip, buyers quickly jumped in at the open of the London session. This was likely due to fundamental buyers still seeing an outlook where the chances of future rate cuts remain low for now and the interest rate differential outlook still looks relatively favorable for the Aussie.

In addition, fresh news of stimulus from the People’s Bank of China supported a broad risk-on sentiment for the session, which may have also contributed to the Aussie dollar’s bid.