Pedestrians walk past the Reserve Bank of Australia building in central Sydney. — Reuters
SYDNEY: Australia's central bank on Tuesday left its cash rate steady at 3.85%, a shock for markets that had confidently wagered on a cut, saying the majority of the board wanted to wait for more information to confirm inflation was slowing.
The Australian dollar jumped 0.8% to $0.6545, while three-year bond futures extended earlier losses and fell 13 ticks to 96.58.
Wrapping up a two-day policy meeting, the Reserve Bank of Australia said it remained cautious about the inflation outlook, adding that six members had voted to hold rates steady while three voted against, a rare split decision for the board.
Markets had been almost fully priced for an easing to 3.60% this week given core inflation had slowed to the mid-point of the RBA's 2% to 3% target range and consumer spending was proving weaker than expected.
"The Board judged that it could wait for a little more information to confirm that inflation remains on track to reach 2.5 per cent on a sustainable basis," the board said in a statement.
"It noted that monetary policy is well placed to respond decisively to international developments if they were to have material implications for activity and inflation in Australia."
On Monday, President Donald Trump ramped up his global trade war, telling trade partners like Japan and South Korea that higher U.S. tariffs would start on August 1, although there appeared to be opportunities for additional negotiations.
The RBA cut interest rates in February and May, but the reductions did little to spur consumers into spending even as they lifted housing prices to record highs.
The stubbornly frugal consumer is a reason that the economy barely grew in the first quarter and a slew of soft retail sales reports suggest households are saving rather than spending past tax cuts.
A monthly inflation report had the closely-watched trimmed mean measure hitting 2.4% in May, a 3-1/2 year low and coming under the midpoint of the target band of 2-3%. That prompted many economists to bring forward their rate cut call to July from August.
The labour market, however, remained resilient, which argues against the RBA rushing into stimulatory policy settings. The unemployment rate has been hovering at 4.1% for over a year now. - Reuters
