RBA keeps rates steady as expected, flags some confidence in easing inflation

Investing.com– The Reserve Bank of Australia kept interest rates unchanged as widely expected on Tuesday while flagging some confidence that inflation was moving towards its target, as economic growth cooled. 

The RBA left its benchmark cash rate at 4.35%, in line with market expectations. Tuesday’s decision is the bank’s final meeting for 2024, with its next meeting scheduled for February 2025. 

The RBA said in a statement that returning inflation to its 2% to 3% annual target remained its “highest priority,” and that it was gaining some confidence that inflation was moving towards its target range.

“Some of the upside risks to inflation appear to have eased and while the level of aggregate demand still appears to be above the economy’s supply capacity, that gap continues to close,” the RBA said. 

The central bank warned that inflation was still expected to only reach its target sustainably by 2026- a trend that could delay any plans to begin easing policy. 

The RBA also warned that Australia’s economic outlook still looked uncertain, offering scant cues on when it could begin easing policy. Bets that the RBA will begin cutting interest rates by Q2 2024 grew in recent sessions after gross domestic product read substantially weaker than expected for the September quarter.

The RBA noted that household consumption is expected to increase as income growth rises. While recent data showed encouraging trends on this front, the central bank warned that there remained a risk that any pick-up in consumption is slower than expected. 

Tuesday’s comments were seen striking a less hawkish chord than prior meetings, given that the RBA also altered some of its language from prior statements. 

The Australian dollar weakened sharply on the RBA’s comments, with the AUD/USD pair sliding 0.7% and remaining close to an eight-month low. 

Australian stocks pared some intraday losses, with the ASX 200 trading down 0.3%.