- Previous 4.35%
- Inflation remains above target and proves persistent
- The outlook remains highly uncertain.
- The process of returning inflation to target has been slow and turbulent.
- High unit labor costs and persistent inflation point to higher price risks.
- Wage growth appears to have peaked but is still above the level that could be sustained under trend productivity growth.
- Momentum in economic activity was weak, as evidenced by slow growth in GDP.
- There is also still a high level of uncertainty about the external outlook.
- Inflation in core terms remains very high.
- It will take some time before inflation sustainably reaches the target range.
- Policy will need to be restrictive enough to restore confidence that inflation is moving sustainably towards the target range.
- RBA rules out next policy steps
- Full statement
The decision is as expected, as is the language used for the most part. However, the RBA is focusing on the upside risks to inflation. This is likely to protect markets from thinking that the next move will definitely be a rate cut, especially after the weak second-quarter CPI report.
In June, the Reserve Bank of Australia noted:
“The path of interest rates that will best ensure that inflation returns to target within a reasonable time frame remains uncertain, and the Fed is not ruling anything out.”
Today they changed that to:
“The data has reinforced the need to remain vigilant about upside risks to inflation, and the Fed is not ruling out any possibilities. Monetary policy will need to be sufficiently restrictive until the Fed is confident that inflation is moving sustainably toward its target range.”
The language essentially reinforces their stance to keep cash rates on hold. But it also means we’re unlikely to see a move in September either. However, it’s not as if markets were expecting anything for next month anyway. The odds of the RBA leaving policy on hold in September are currently around 88%.