The Reserve Bank of Australia today left its cash rate target unchanged at 4.35%, sticking to its hawkish stance on inflation while acknowledging economic uncertainty. The decision was widely expected by market participants, as explained and forecasted in Babypips.com’s event guide.
Key points from the RBA statement:
- Inflation remains above target and proves persistent
- Current forecasts do not expect inflation to return sustainably to target until 2026.
- Q2 GDP data confirms weak growth
- Labor market conditions remain tense despite some signs of gradual easing.
- The Council remains firm in its determination to return inflation to the target level.
Link to the Reserve Bank of Australia’s September statement
The Reserve Bank of Australia confirmed in its statement that “Inflation remains above target and is proving persistent.” The Council noted that while inflation has fallen significantly since its peak in 2022, it remains “above the midpoint of the 2-3 percent target range.” The core inflation measure averaged 3.9 percent over the year to the last quarter of June.
The central bank highlighted ongoing economic uncertainty, including lags in the effects of monetary policy, corporate pricing decisions, wage responses, and geopolitical factors. Despite these concerns, the RBA stressed that its current policy stance is “restrictive and operating broadly as expected”.
during After the press conferenceReserve Bank of Australia Governor Michelle Bullock reiterated the board’s commitment to curbing inflation: “Returning inflation to target sustainably within a reasonable timeframe remains the Governing Council’s top priority. This is consistent with the RBA’s mandate of price stability and full employment.”
She also noted that the economic outlook is uncertain, as is achieving the target of reducing inflation without causing a recession, so the RBA is currently prepared to adjust policy in any direction if necessary.
Market Reactions
Comparison between the Australian Dollar and major currencies Chart by TradingView
The initial reaction to the RBA decision saw the Australian dollar rally across the board. This “buy the truth” response is likely to reflect The market interpretation was that the RBA’s continued focus on inflation and its reluctance to signal any near-term easing was more hawkish than expected.
Selling pressure was evident during the press conference, and was probably a combination of some profit taking, net negative comments from the RBA Governor on concerns about productivity and slowing GDP growth, and/or perhaps reactions to comments that a rate hike was not being considered at this month’s meeting.
Despite the decline, buyers were quick to buy the Australian dollar at the London open. This is probably due to fundamental buyers still seeing the likelihood of future interest rate cuts as low for now, and the interest rate differential outlook still looking relatively favorable for the Australian dollar.
In addition, New news on stimulus measures from the People’s Bank of China This was supportive of the broader risk sentiment during the session, which may have also helped support the Australian dollar.