Australia’s central bank left its benchmark interest rate at 4.1 percent at a policy meeting yesterday after inflation fell to 5.6 percent in May from 6.5 percent a month earlier.
The Reserve Bank of Australia (RBA) has lifted the cash rate 12 times since May last year to reduce inflation to a target range of 2 to 3 percent.
Higher interest rates raise the cost of borrowing for businesses and consumers, slowing economic activity and helping to relieve price pressures that have flared after the slowdowns of the COVID-19 pandemic.
Photo: AP
The RBA’s second pause of the year was predicted by about 60 percent of economists surveyed by Bloomberg, but Governor Philip Lowe said that further rises might be needed.
“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable time frame, but that will depend upon how the economy and inflation evolve,” Lowe said in a statement.
“The decision to hold interest rates steady this month provides the board with more time to assess the state of the economy and the economic outlook and associated risks,” Lowe added.
Yesterday’s decision came as Australian Treasurer Jim Chalmers is this month due to make an announcement on the next RBA governor, with Lowe’s seven-year term expiring in mid-September. Some observers have warned that a move to replace Lowe during a tightening cycle might be perceived as political influence, particularly as his two predecessors received three-year extensions.
The governor has acknowledged that his policy path to cooling inflation while preserving employment gains is “narrow,” while reiterating that the bank would do what it takes to bring inflation back to target.
In a report, Oxford Economics Ltd said it expects the cash rate to eventually peak at 4.6 percent.
“While inflation has peaked, it remains uncomfortably high,” it said.
Globally, inflation pressures have abated somewhat, allowing the US Federal Reserve and other central banks to also slow or halt rate increases.
Additional reporting by Bloomberg
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