SYDNEY: Australia’s central bank has kept its key interest rate unchanged for the first time this year in response to signs that its trio of hikes are beginning to weigh on the nation’s economy.
The Reserve Bank of Australia’s (RBA) nine-member board held the cash rate at 4.35% yesterday, as anticipated, in a unanimous vote.
Governor Michele Bullock was due to hold a press conference in Sydney, with investors focused on any signs that policymakers are settling into an extended pause or will maintain a tightening bias.
“Following the three increases in the cash rate target since the beginning of the year, financial conditions are now tighter than they were, and there are signs that the economy is slowing as expected,” the board said in its post-meeting statement.
The pause is a step back from the RBA’s aggressive tightening campaign that made it an outlier among major central banks.
While policymakers continue to warn that inflation remains too high and that elevated energy costs linked to the Iran war pose upside risks, softer data provided scope for the RBA to hold and assess.
Three of the nation’s big four banks reckon the RBA will stand pat for the rest of 2026. National Australia Bank Ltd’s Sally Auld cited a loss of momentum in the economy when she abandoned her call for another rate hike in August and projected the central bank would cut rates three times next year.
Since the RBA’s May meeting, unemployment has surprisingly risen to a 4½-year high, household spending has fallen and economic growth came in a bit weaker than expected. The housing market has also softened on higher borrowing costs and government tax changes.
While inflation is still above the top of the RBA’s 2% to 3% target, recent readings showed momentum wasn’t as strong as feared.
The RBA’s decision aligns Australia more closely with a global backdrop in which central banks are increasingly choosing to wait rather than act. The US Federal Reserve, Bank of England and Swiss National Bank are all expected to leave rates unchanged this week.
There are some exceptions. Central banks in Asia have been tightening policy to help tame inflation and shore up their currencies, while the Bank of Japan raised rates yesterday. The European Central Bank last week also tightened, with its first hike in almost three years. — Bloomberg
