Australia’s central bank yesterday signaled that it would keep its key interest rate at a 12-year high in the near term as it struggles with stubborn inflation that is keeping the country from joining a global easing cycle.
“Based on what we know at the moment rates will remain on hold for the time being,” Reserve Bank of Australia (RBA) Governor Michele Bullock told a news conference in Sydney after keeping the cash interest rate at 4.35 percent for a seventh straight meeting.
Still, the bank is not “ruling anything in or out” on policy, Bullock said.
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Unlike last month, when policymakers put a rate rise on the table, this time around a hike was not “explicitly considered,” Bullock told reporters.
The central bank is focused on returning inflation sustainably to its 2-to-3 percent target, she said.
The bank is facing increasing pressures at home to lower borrowing costs, with politicians sparring over the outlook on interest rates ahead of an election due by May next year.
Bullock said that the central bank would not be dragged into politics.
Its communication yesterday highlights its outlier status compared with peers. Last week, US Federal Reserve Chairman Jerome Powell led his colleagues to an outsize rate cut designed to preserve the strength of the US economy.
Bullock acknowledged the divergence, saying that other central banks had moved into more restrictive territory than Australia.
Economists generally expect rate cuts in Australia to begin in February next year.
Bullock has repeatedly pushed back against talk of near-term easing, reflecting forecasts that inflation would only return to the RBA’s target range late next year.
That has brought her into the political firing line from members of the ruling Labor party and minority parties that are pushing for a rate cut.
At 3.9 percent, Australia’s core prices remain well above target, driven largely by non-discretionary spending such as insurance, education and housing. The job market remains in good shape with unemployment at 4.2 percent.
Monthly data set to be released today are expected to show that inflation has fallen back within the RBA’s band for the first time since August 2021, reflecting the impact of government energy subsidies and other measures.
Bullock said the board wants to be confident that price growth is moving sustainably back toward the bank’s goal, not just moving in and out.
The RBA’s resistance to easing combined with political jockeying over a pending reform of its board structure has spurred domestic criticism of the bank.
The Greens party is demanding the government use its reserve powers to order the RBA to cut rates as a condition for supporting legislation that would split the board in two — one for monetary policy and the other for governance. The government dismissed the Greens’ suggestion as “crazy.”
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