SYDNEY: Australia's central bank held interest rates steady on Tuesday, as expected, but reiterated that policy would need to stay restrictive until it was certain core inflation was slowing as desired.
There was subdued market reaction, with the Australian dollar little changed at $0.6590. Rate swaps suggest there is a scant chance of a rate cut this year, with a first easing most likely in April or May next year.
Wrapping up its November policy meeting, the Reserve Bank of Australia (RBA) kept rates at a 12-year high of 4.35%. It repeated that it was not ruling anything in or out on policy.
Markets have heavily wagered on a steady outcome as the labour market stayed surprisingly strong and third quarter core inflation was still a little sticky.
"While headline inflation has declined substantially and will remain lower for a time, underlying inflation is more indicative of inflation momentum, and it remains too high," said the board in a statement.
"This reinforces the need to remain vigilant to upside risks to inflation and the Board is not ruling anything in or out."
The central bank's latest forecasts showed underlying inflation - a trimmed mean measure closely watched by the RBA - is expected to slow just a touch to 3.4% by year-end from 3.5% in the third quarter.
The RBA has held its policy steady for a year, judging the current cash rate of 4.35% - up from 0.1% during the pandemic - is restrictive enough to bring inflation to its target band of 2-3% while preserving employment gains.
Headline inflation slowed to 2.8% in the third quarter, back in the target band for the first time since 2021, but that was mostly due to government rebates on electricity bills. Underlying inflation came in at 3.5%, still somewhat sticky.
The economy barely grew in the last few quarters but the labour market somehow has stayed surprisingly strong with employment gains averaging 3.1% over the past year, twice the U.S. rate. The jobless rate stayed low at 4.1%.
All that means is that a rate cut this year is looking unlikely, making the RBA one of the last few central banks to ease policy. - Reuters
