RBA holds rates steady, eyes data as inflation concerns linger
The Reserve Bank of Australia (RBA) maintained its cash rate at a 12-year high of 4.35% on Tuesday (Feb 6).
RBA holds cash rate at 4.35%, pausing after aggressive rate hikes
Inflation remains above target, driven by services prices
Data-driven approach emphasized by Governor Bullock
The Reserve Bank of Australia (RBA) held its cash rate unchanged at 4.35% today, as anticipated by markets. This decision follows a two-year tightening cycle that saw rates climb by 425 basis points to combat inflation. While acknowledging some moderation in cost pressures, particularly for goods, the central bank remains cautious, emphasizing its commitment to achieving its 2-3% inflation target.
Gradual easing, stubborn inflation
Policymakers acknowledged a slight easing in cost pressures, particularly for goods. However, Governor Michele Bullock highlighted, "Inflation remains uncomfortably high, driven by persistent price rises in services." This concern was echoed by the board, which stated the need for "data that assures us inflation is coming back to target."
Data drives decisions
Governor Bullock emphasized a data-driven approach, stating, "The path of interest rates will depend upon the data and the evolving assessment of risks." This sentiment aligns with the board's commitment to monitor the global economy, domestic demand, and the labor market in the coming months.
Governor Bullock expressed cautious optimism, citing a 2.8% 2025 inflation forecast and stating, "I feel we are potentially on the narrow path to getting inflation back to target." However, she acknowledged a moderate confidence level (5/10), underlining the need for further data.
The RBA's cautious stance mirrors similar approaches adopted by other central banks. Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, suggested the possibility of a higher neutral rate, implying the Fed might have more leeway to assess economic conditions before easing policy.