RBA Holds Key Rate to Counter Elevated Inflation Pressures

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Or sign-in if you have an account.r]tkpihwajjo1a7)azq4q1hb_media_dl_1.png Bloomberg(Bloomberg) — Australia’s central bank kept its key interest rate unchanged on Tuesday, wagering that higher unemployment and a weakening property market will weigh on economic activity sufficiently to cool inflation.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountThe Reserve Bank board chaired by Governor Michele Bullock held the cash rate at 4.35% for a second straight meeting, in a unanimous decision that had been widely anticipated. The RBA has failed to reach the midpoint of its 2-3% inflation target for about five years.“The board remains focused on ensuring that high inflation does not become embedded,” it said in the post-meeting statement. “With monetary policy judged to be somewhat restrictive,” the board said it would “continue to do what it considers necessary to bring inflation sustainably back to target, including increasing the cash rate target further if upside risks materialise.”Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againThe Australian dollar slipped 0.2% following the decision. The yield on policy-sensitive three-year government notes erased an earlier advance to trade two basis points lower as expectations for another RBA rate hike this year were trimmed.The RBA raised rates at its first three meetings of the year and is trying to gauge whether it can now stay on the sidelines or needs to move to even more restrictive levels. A wild card is deadlocked talks to try to end the US-Iran war that unleashed a global energy shock and is keeping oil prices elevated.“Data has generally shifted in the RBA’s favor recently,” said Callam Pickering, economist at jobs website Indeed Inc. “Inflation hasn’t increased as much as was initially feared and the job market has stabilised after some rough data earlier this year.”All four of Australia’s major banks reckon the RBA is done with tightening and will pause for some time before shifting to easing. Westpac Banking Corp.’s Luci Ellis pointed out that higher borrowing costs and the end of tax breaks for property investors are weighing on housing, reinforcing that fiscal and monetary policy working in unison makes for a powerful combination.The home-price drop has been led by market bellwether Sydney, which is down 5.3% from its peak. Yet the median value of a Sydney dwelling is still A$1.24 million ($870,000), highlighting how strong the run-up had been.Since the RBA’s last meeting in mid-June, unemployment has hovered around 4.4% with solid hiring; inflation has remained well above target, but has been a touch softer than estimates; and household spending has proved quite resilient even as consumer sentiment remains weak.“There continue to be heightened uncertainties about the outlook for domestic economic activity and inflation,” the statement showed. “In Australia, historically weak productivity growth continues to constrain potential growth.”This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.The central bank also on Tuesday released its quarterly update of economic forecasts in the Statement on Monetary Policy. It showed both headline and underlying inflation are expected to reach the 2.5% midpoint of the target only in early 2028. The central bank noted that while unemployment is forecast to edge higher compared with three months earlier, the labor market is still assessed to be “a little tight.”The RBA’s pause sees it more aligned to the Federal Reserve, which late last month stood pat for a fifth straight meeting, though three dissenters voted for a quarter-point hike. Yet a weak US jobs report last Friday and a moderation in price growth — July CPI is due out Wednesday — may help alleviate some of the inflation anxiety at the US central bank.Meantime, President Donald Trump has made sweeping new demands on Iran after Tehran reiterated demands for reparations as part of talks to wind down the conflict. That’s dimmed hopes of a quick deal that would reopen the vital Strait of Hormuz and has pushed oil prices higher.“The RBA finds itself between a rock and a hard place,” said KPMG Australia Chief Economist Brendan Rynne. “It is trying to bring inflation back to target without causing unnecessary damage to the labor market, but ultimately its primary responsibility is price stability. On balance, we would not be surprised to see another rate increase in the coming months.”—With assistance from Matthew Burgess.(Adds comments from economists, updates markets.)Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.