RBA Continues Rate Pause as Lowe Leaves With Prices Declining

Australia’s central bank, the Reserve Bank, has decided to maintain its cash rate at 4.1% for a third consecutive meeting, as widely anticipated by both markets and economists. Governor Philip Lowe’s term is set to end on September 17, and he maintained a tightening bias for the Australian economy as inflation remains subdued.

The decision to pause for three meetings in a row implies that any further rate hikes will have a higher hurdle and that unexpected economic data will likely be needed to prompt additional tightening. Lowe has taken a more cautious approach than many of his counterparts in other developed countries, given the rapid pass-through of rate hikes to Australian borrowers.

Lowe has made a judgment call of 4 percentage points of hikes compared with the Federal Reserve’s 5.25, which appears to be paying off with inflation now steadily cooling. However, the outlook remains uncertain, with significant uncertainties around the risk of services price inflation staying sticky in Australia. There are also concerns offshore as China, Australia’s biggest trading partner, is engulfed in a housing crisis which is impacting key commodity prices like iron ore and coal that generate much of Australia’s wealth.

source: tradingeconomics.com

Despite the challenges, economists expect that the RBA will need to increase borrowing costs at least one more time to 4.35%, pointing to the nation’s ultra-low unemployment rate of 3.7% and still-elevated inflation. However, CPI is only forecast to return to the RBA’s 2-3% target in late 2025.

Lowe admits that achieving a soft landing is a tough job, but assures that the bank is committed to taking necessary measures to bring inflation back on track. The future of household consumption is also uncertain, highlighting the need for vigilance, especially since Australian households are among the most indebted in the developed world, with a debt-to-income ratio of 188%.

AUD/USD Short (Sell)
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T.P_2: 0.59901
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S.L: 0.66012


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