RBA holds interest rates, but flags possibility of more hikes

Investing.com — The Reserve Bank of Australia held rates steady on Tuesday, citing the need to assess the economic impact of its year-long rate hike cycle, but left the door open for more potential rate hikes as inflation remained high.

The RBA held its at 4.10%. A slim majority of analysts had expected the bank to hike rates by 25 bps, following unexpected hikes in both May and June.

The central bank has now hiked rates by a cumulative 400 bps since May 2022, as it moves to quell a post-COVID boom in inflation. While it has marked some headway, with retreating further from 30-year peaks in May, core inflation has still remained high, pointing to persistent price pressures in the country.

RBA Governor Philip Lowe said in a statement that July’s decision to pause was largely to observe the state of the economy, as well as potential economic risks to Australia from global uncertainties.

But Lowe noted that inflation was “still too high, and will remain so for some time yet.” To this end, the RBA will still consider more rate hikes to bring inflation back under its 2% to 3% annual target.

“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.

Lowe said on Tuesday that the path to achieving the RBA’s inflation target was a narrow one. High inflation has weighed heavily on Australian household spending, which is otherwise a key driver of the economy.

The RBA has warned that the Australian economy is expected to cool amid pressure from high rates and inflation, while unemployment is also expected to increase in the coming months. But the country’s job market has remained resilient despite high inflation, with moving back towards 50-year lows in May. Strength in the jobs market has also fed Australian inflation this year.

The fell 0.3% after the RBA decision, while the index jumped 0.5%.

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