The Reserve Bank of Australia (RBA) announced that the cash rates will be kept on hold at 4.35%, avoiding a tightening bias as demanded by economists to curb inflation.
Wrapping up its two-day May policy meeting, RBA kept rates at a 12-year high, avoiding a hike as economists suggested after first quarter inflation, Reuters reported.
Speaking to the media, Governor Michele Bullock said that interest rates were at the right level, but warned that inflation risks were on the upside and needs to be watchful. “Back in the last meeting, we thought that things were reasonably balanced,” Bullock said. “I think we still think they’re reasonably balanced with perhaps a little bit of a signal that we need to be very watchful on the upside.”
Bullock added that the board discussed about raising interest rates, but cautioned that monetary policy was already limited to bring inflation back to the bank’s target band of 2-3% by late 2025. “Right now we believe that rates are at the right level to achieve this, but there are risks and at this stage, the board is not ruling anything in or out,” she said.
Economists and investors had been forecasting the RBA to cut rates. Australia has, however, been slow to start hiking interest rates and they remain lower than most countries even though inflation is higher, The Guardian reported. According to the quarterly statement on monetary policy, released by RBA, it lowered the GDP growth target for Australia, a move to curb any near-term rise in inflation.
The central bank estimates the cash rate will be 4.4% by December, up from 3.9% in its forecast three months ago.
Reuters reported the Australian dollar fell 0.5% to $0.6587, after the RBA announcement.
The ASX 200 gained with the local share market ending 1.4% higher at 7,793 points. It’s the highest daily close for the ASX200 in almost four weeks, ABC News reported.
