As expected, the Reserve Bank of Australia (RBA) kept interest rates at 4.35% in May.
The Central Bank statement indicated this
- Inflation is expected to return to the target range of 2%-3% in the second half of 2025 and to 2.5% in 2026.
- Short-term inflation will “fall more slowly over the rest of the year” because higher gasoline prices and utility price inflation would push it higher
- Continued service inflation poses 'major uncertainty'
- The return of inflation to target is unlikely to be smooth
- The board “is not judging anything either at home or abroad” and the path of interest rates “remains uncertain.”
Link to the Reserve Bank of Australia's official statement for May 2024
In which presserRBA Governor Michelle Bullock shared her bias against further interest rate hikes, saying, “I hope we don't have to raise interest rates again“But also add”We don't think we necessarily have to tighten up again, however We can't rule that out. If we have to do it, we will do it.“
Market reactions
Australian dollar against major currencies: 5 minutes
Overlay of the Australian dollar against major currencies Chart by TradingView
Although it said the board would “remain vigilant to the upside risks” to inflation, the statement did not contain sufficiently hawkish notes for many Australian dollar bulls.
This is likely why the Australian dollar reacted negatively to the news. The comdoll, which traded in tight ranges before the release, lost points against its major peers shortly after the RBA announcement and received fresh downward pressure during Governor Bullock's squeeze period.
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