| Consensus | Consensus Range | Actual | Previous | |
| Change | 0bp | 0bp to 0bp | 0bp | 25bp |
| Level | 4.35% | 4.35% to 4.35% | 4.35% | 4.35% |
Highlights
The Reserve Bank of Australia left its main policy rate, the cash rate, on hold at 4.35 percent at its meeting today, in line with the consensus forecast. This rate was increased by 25 basis points at each of the three previous policy meetings held so far this year.
Since the RBA's previous meeting in early May, monthly CPI data have shown headline inflation moderate from 4.6 percent in April to 4.2 percent in May, largely reflecting some easing in pressure on fuel prices. Headline inflation has now been above the RBA's target range of two percent to three percent for nine consecutive months. Measure of core inflation have also been above the target range in recent months.
In the statement accompanying today's decision, officials again highlighted the recent increase in inflation and noted evidence that the increase in fuel prices caused by the Iran conflict is being passed through to other goods and services. This, they judge, means that inflation is likely to remain high"for some time". Officials also noted that uncertainty about the Iran conflict is a risk for the domestic growth outlook.
Officials stressed that"growth in demand needs to slow to reduce capacity pressures and help bring inflation back to target". They noted signs that the three rate increases already delivered so far this year is helping do that and concluded that policy rates should remain on hold for now as they assess the ongoing response to these rate increases. The decision to leverages on hold today was unanimous but officials indicated that they are ready to consider further policy tightening if price pressures do not ease.
Market Consensus Before Announcement
Forecasters believe the RBA bought itself time with past rate increases to hold steady this time even if inflation is way too hot. With inflation running above target, the expectation calls for more rate hikes soon, just not this time.
Definition
The Reserve bank of Australia (RBA) announces its monetary policy with regard to interest rates on the first Tuesday of each month with the exception of January when it is on vacation. The RBA is the central bank of Australia and its duty is to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people. It does this by setting the cash rate to meet an agreed medium-term inflation target, working to maintain a strong financial system and efficient payments system.
Description
The Reserve Bank of Australia's (RBA's) main responsibility is monetary policy. Policy decisions are made by the Reserve Bank Board with the objective of achieving low and stable inflation over the medium term. Other responsibilities include maintaining financial system stability, while at the same time promoting the safety and efficiency of the payments system. The RBA regards appropriate monetary policy as a major factor contributing to the Australian dollar's stability, which in turn leads to full employment and the economic prosperity for Australia.
The RBA is unique among the central banks - it has two boards with complementary responsibilities. The Reserve Bank Board is responsible for monetary policy and overall financial system stability. The Payments System Board has specific responsibility for the safety and efficiency of the payments system.
The RBA sets an interest rate at which it lends to financial institutions. This interest rate then affects the whole range of interest rates set by commercial banks and other institutions for their own savers and borrowers. It also tends to affect the price of financial assets, such as bonds and shares, and the exchange rate, which affect consumer and business demand in a variety of ways. Lowering or raising interest rates affects spending in the economy.
The level of interest rates affects the economy. Higher interest rates tend to slow economic activity; lower interest rates stimulate economic activity. Either way, interest rates influence the sales environment. In the consumer sector, few homes or cars will be purchased when interest rates rise. Furthermore, interest rate costs are a significant factor for many businesses, particularly for companies with high debt loads or who have to finance high inventory levels. This interest cost has a direct impact on corporate profits. The bottom line is that higher interest rates are bearish for the financial markets, while lower interest rates are bullish.