SYDNEY – Australia’s central bank on Sept 24 held interest rates steady as expected and reiterated that policy needed to stay tight to bring inflation to heel, sticking to its guns a week after the US Federal Reserve started its easing campaign with a bang.
The hawkish stance sent the Australian dollar 0.4 per cent higher to US$0.6864, the highest in 2024, and markets pared the chance of a December rate cut to 59 per cent from 64 per cent before the decision.
Wrapping up its September policy meeting, the Reserve Bank of Australia (RBA) kept rates at a 12-year high of 4.35 per cent and said policy would have to be sufficiently restrictive to ensure inflation returned to target.
“While headline inflation will decline for a time, underlying inflation is more indicative of inflation momentum, and it remains too high,” the board said in a statement largely similar to the one in August.
“Data since then have reinforced the need to remain vigilant to upside risks to inflation and the Board is not ruling anything in or out.”
Markets had wagered heavily on a steady outcome given underlying inflation remained sticky and the labour market held up surprisingly well.
“Underlying inflation is still too high for the RBA’s liking, and progress back to the target range is frustratingly slow,” said Oxford Economics Australia head of macroeconomic forecasting Sean Langcake.
The RBA has kept rates steady since November, judging that the cash rate of 4.35 per cent – up from a record-low 0.1 per cent during the pandemic – is restrictive enough to bring inflation to its target band of 2-3 per cent while preserving employment gains.
With underlying inflation stubborn at 3.9 per cent last quarter and the labour market churning out lots of new jobs, there appears to
