RBA Keeps Rate Unchanged, Signals More Tightening

The Reserve Bank of Australia decided to keep its key rate unchanged unexpectedly on Tuesday in order to assess the impact of the previous tightening on the economy and its associated risks.

The board of the Reserve Bank of Australia, led by Governor Philip Lowe, left the cash rate target unchanged at 4.10 percent.

Although further tightening of policy may be required to bring inflation back to the target in a reasonable timeframe, such move will depend upon how the economy and inflation evolve, Lowe said.

Interest rates have been raised by 4 percentage points since May last year.

The latest decision provides the board with more time to assess the state of the economy and the economic outlook, and associated risks, the governor added.

The RBA board expects the economy to expand as inflation returns to the 2-3 percent target range but the path to achieving this balance is a narrow one. The bank also said the outlook for household consumption continues to be the major source of uncertainty.

Capital Economics’ economist Marcel Thieliant said the central bank seems to be increasingly prepared to tolerate a sharp economic slowdown in order to attain the inflation target.

Another 25 basis points rate hike in August still looks likely and the Bank will follow that up with another one in September, the economist added.

“Following the June meeting we raised our forecast for the terminal rate to 4.6 percent,” Westpac Chief Economist Bill Evans said.

With hikes now coming in August and September, but thereafter the Board can be patient as inflation pressures ease and the economy stagnates, Evans noted.

Source: Read Full Article