Australia’s central bank holds rates, signals more hikes maybe required

SYDNEY (Reuters) -Australia’s central bank on Tuesday held interest rates steady saying it wanted more time to assess the impact of past hikes, but reiterated its warning that further tightening might be needed to bring inflation to heel.

Wrapping up its July policy meeting, the Reserve Bank of Australia (RBA) kept its cash rate at an 11-year high of 4.10%, having lifted rates by 400 basis points since May last year, in its most aggressive tightening cycle in modern history to tame inflation.

Markets had been leaning towards a pause. But economists were split on the outcome, with 16 out of 31 polled by Reuters expecting a hike and the rest forecasting the bank to stand pat. [AU/INT] . [AU/INT]

The Australian dollar dipped 0.4% to $0.6647, and three-year bond futures recovered earlier losses to be flat on the day at 96.06.

“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,” RBA Governor Philip Lowe said in the policy statement.

“In light of this and the uncertainty surrounding the economic outlook, the Board decided to hold interest rates steady this month.”

Economic data over the past month have been mixed. A blockbuster jobs report and strong retail sales added to the case for further tightening while a sharp cooling in a volatile monthly inflation reading argued for a pause.

The RBA first paused in April and then surprised markets by resuming its hikes both in May and June, saying inflation was still too high and inflation expectations threatened to become entrenched.

“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve,” Lowe said in Tuesday’s statement.

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