| Consensus | Consensus Range | Actual | Previous | |
| Change | 0bp | 0bp to 0bp | 0bp | 0bp |
| 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 a cumulative 75 basis points earlier in the year but has now been left on hold for two consecutive meetings. Officials also published updated economic forecasts today.
Since the RBA's previous meeting mid-June, headline inflation fell from 4.2 percent in April to 4.0 percent in May and 3.8 percent in June, largely reflecting a waning impact of the Iran conflict on fuel prices. Nevertheless, it remains well above their target range of two percent to three percent.
In the statement accompanying today's decision, officials noted that the impact of the Iran conflict on inflation has"so far been less than expected" but cautioned that headline inflation is still too high and will likely remain so"for some time". They judge, however, that the economy is now slowing"as expected" in response to the rate hikes earlier in the year.
Reflecting this assessment, officials concluded today that monetary policy is now restrictive and that it is appropriate to leave policy rates on hold while they assess"how the economy is evolving". This decision was unanimous but the statement also indicated that they are ready to consider further policy tightening if price pressures do not ease. This was also confirmed by RBA Governor Michele Bullock in her post-meeting media conference.
The updated forecasts from the RBA, however, show that officials still currently expect that inflation will return to the target range over the next twelve months. Headline inflation is now forecast to be 3.6 percent at end-2026, down from the previous forecast of 4.0 percent made in May. Officials expect it to fall further to 2.8 percent at mid-2027 and 2.6 percent at end-2027, though this is higher than the previous forecasts of 2.4 for both periods. The forecast for the trimmed mean measure of inflation at end-2027 remains unchanged at 2.6 percent. Both measures of inflation are forecast to be at 2.4 percent mid-2028, down from the previous forecast of 2.5 percent.
Officials have also revised their growth forecasts slightly higher. Australia's economy is now forecast to expand by 1.4 percent on the year in the year to December 2026, up from 1.3 percent previously, and by 1.6 percent in the year to December 2027, up from 1.4 percent previously.
Market Consensus Before Announcement
Inflation appears subdued enough lately to allow the RBA to keep rates where they are after three increases earlier in the year.
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.