Reserve Bank of Australia leaves its cash rate unchanged at 4.1%, as widely expected

Headlines via Reuters:

  • Some further tightening of monetary policy may be required
  • Board remains
    resolute in its determination to return inflation to the target
  • Recent data are
    consistent with inflation returning to the target range over the forecast
    horizon
  • Higher interest
    rates are working to establish a more sustainable balance between
    supply and demand in the economy
  • Inflation in
    Australia has passed its peak but is still too high and will remain
    so for some time yet.
  • Timely indicators on
    inflation suggest that goods price inflation has eased further, but
    the prices of many services are continuing to rise briskly
  • Central forecast is
    for CPI inflation to continue to decline and to be back within the 2–3 per cent target range in late 2025
  • There are
    significant uncertainties around the outlook
  • Returning inflation
    to target within a reasonable timeframe remains the Board’s
    priority
  • Inflation is coming
    down, the labour market remains strong and the economy is operating
    at a high level of capacity utilisation

Also as expected is the hawkish tilt leaving the option open for further rate hikes that ‘may be required’

First meeting for the new Governor.

The Reserve Bank of Australia (RBA) cash rate is the overnight money market interest rate in Australia

  • Its the rate at which banks and financial institutions lend to and borrow from each other for overnight loans
  • The cash rate is used by the RBA as its primary tool for implementing monetary policy. By adjusting the cash rate, the RBA aims to influence the level of economic activity in Australia, to control inflation, and achieve other economic objectives.
  • Changes in the cash rate directly influence borrowing costs in the economy. A lower cash rate often means lower interest rates on various loans and credit products, making borrowing cheaper for households and businesses. Conversely, a higher cash rate can make borrowing more expensive.
  • For FX traders, the cash rate can influence the value of the Australian dollar (AUD) on foreign exchange markets. For instance, a higher cash rate might attract foreign capital seeking better returns, potentially pushing up the value of the AUD. Conversely, a lower cash rate might deter investment and put downward pressure on the AUD.
  • Changes in the cash rate can have broad effects on consumer spending, business investment, and overall economic growth. For example, a rate cut might stimulate borrowing and spending, potentially boosting the economy, while a rate hike could dampen borrowing and spending.

This article was written by Eamonn Sheridan at www.forexlive.com. Source