RBA holds interest rate at 4.35% in December, as expected
The Reserve Bank of Australia (RBA) board members decided to leave the Official Cash Rate (OCR) unchanged at 4.35%, following the conclusion of its December monetary policy meeting on Tuesday.
The decision came in line with the market expectations. The RBA raised the interest rate by 25 basis points (bps) in November.
RBA’s Governor Michele Bullock presented the monetary policy statement, with the key highlights noted below.
Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks.
Board remains resolute in its determination to return inflation to target.
The limited information received on the domestic economy since the november meeting has been broadly in line with expectations.
Outlook for household consumption also remains uncertain.
The monthly CPI indicator for October suggested that inflation is continuing to moderate, driven by the goods sector; the inflation update did not, however, provide much more information on services inflation.
Measures of inflation expectations remain consistent with the inflation target.
Conditions in the labor market also continued to ease gradually, although they remain tight.
Domestically, there are uncertainties regarding the lags in the effect of monetary policy.
Higher interest rates are working to establish a more sustainable balance between aggregate supply and demand in the economy.
Holding the cash rate steady at this meeting will allow time to assess the impact of the increases in interest rates on demand, inflation and the labor market.
AUD/USD reaction to the RBA interest rate decision
The Australian Dollar has come under renewed selling pressure in an immediate reaction to the RBA’s expected pause. The AUD/USD pair is dropping to near 0.6580, down 0.60% on the day.
AUD/USD: 15-minutes chart
Australian Dollar price today
The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies today. Australian Dollar was the weakest against the Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.02% | 0.00% | 0.14% | 0.62% | -0.11% | 0.32% | 0.01% | |
| EUR | 0.03% | 0.03% | 0.18% | 0.65% | -0.08% | 0.35% | 0.05% | |
| GBP | 0.00% | -0.02% | 0.16% | 0.63% | -0.08% | 0.34% | 0.02% | |
| CAD | -0.14% | -0.17% | -0.16% | 0.46% | -0.23% | 0.19% | -0.13% | |
| AUD | -0.63% | -0.64% | -0.62% | -0.47% | -0.71% | -0.29% | -0.61% | |
| JPY | 0.10% | 0.03% | 0.06% | 0.24% | 0.73% | 0.39% | 0.10% | |
| NZD | -0.32% | -0.34% | -0.30% | -0.17% | 0.30% | -0.43% | -0.28% | |
| CHF | 0.00% | -0.03% | 0.00% | 0.15% | 0.62% | -0.12% | 0.32% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
This section below was published at 18:00 GMT on Monday as a preview of the Reserve Bank of Australia (RBA) policy announcements.
- Interest rate in Australia is likely to stay on hold at 4.35% in December after November’s hike.
- Reserve Bank of Australia Governor Michele Bullock could leave the door ajar for more tightening.
- The Australian Dollar is set to rock on any surprise in the language of the RBA’s policy statement.
The Reserve Bank of Australia (RBA) is set to pause its tightening cycle once again, leaving the Official Cash Rate (OCR) unchanged at a 12-year high of 4.35% following the conclusion of its December monetary policy meeting on Tuesday. The decision will be announced at 03:30 GMT.
As markets widely expect the RBA to keep interest rates unchanged, all eyes will remain on Governor Michele Bullock’s forward guidance in the policy statement for a fresh directional impetus on the Australian Dollar.
Reserve Bank of Australia to stand pat as inflation resurgence wanes
Amidst a resurgence of inflationary pressures, the Reserve Bank of Australia raised the benchmark interest rate by 25 basis points (bps) from 4.10% to 4.35% in November after keeping it on hold for four straight meetings.
Since then, Australia’s inflation and retail spending have cooled down, cementing the case for the central bank to keep its cash rate unchanged this week. Data from the Australian Bureau of Statistics (ABS) on Wednesday showed its monthly Consumer Price Index (CPI) climbed at an annual pace of 4.9% in October, slowing from the previous increase of 5.6% and below expectations of a 5.2% acceleration. The RBA’s closely-watched measure of core inflation, the trimmed mean, rose an annual 5.3% in October, easing from 5.4% the previous month.
The services inflation, measured by the Wage Price Index, rose 4.0% annually, at the fastest pace since early 2009. The uptick in pay growth was largely priced in by the RBA, as it hiked rates last month. Further, markets believe the surge in wage inflation is caused by one-off factors and is unlikely to be recurrent.
Meanwhile, Australian Retail Sales dropped 0.2% in October on a monthly basis, missing expectations for growth of 0.2% while reversing a 0.9% jump seen in September. Weakening economic indicators justify the expected pause in the central bank’s rate hike cycle.
The main attention, however, is likely to be on the language in the policy statement, especially after the RBA guidance in November was perceived as dovish after Governor Bullock said in the statement, "whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks." The October policy statement cited, “some further tightening of monetary policy may be required.”
The RBA will likely maintain its cautious tone, awaiting the fourth-quarter inflation report in January to decide on the next interest rate move for its first meeting of 2024 in February. Speaking at the Hong Kong Monetary Authority and Bank for International Settlements High-Level Conference last Tuesday, RBA Governor Bullock said, “the central bank has to be a ‘little bit careful’ with using rates to bring down inflation without lifting unemployment.”
Previewing the RBA policy decision, analysts at TD Securities (TDS) explained, “data has been mixed recently, with a red-hot labor market print but a sizeable retreat in CPI inflation and slowing retail sales. Thus, the RBA may take a cautious approach and keep rates on hold until Feb to reassess after it gets new staff forecasts and the Q4 CPI. We expect little change to the MPS but a hawkish tint may not be surprising after Bullock's recent remarks.”
How will the RBA interest rate decision impact AUD/USD?
The Australian Dollar’s (AUD) fate hinges on the RBA’s communication on the path forward on the interest rate. Should Governor Bullock explicitly mention that more rate hikes remain on the table, AUD/USD is likely to extend its ongoing uptrend. On the contrary, a dovish pause by the RBA could trigger a meaningful correction in the Aussie pair toward 0.6550.
Dhwani Mehta, Asian Session Lead Analyst at FXStreet, notes key technicals to trade AUD/USD on the policy outcome. “AUD/USD has stalled its recent upbeat momentum just shy of the 0.6700 level, the highest level in four months. The 14-day Relative Strength Index (RSI), however, remains well above the midline while flirting with the overbought territory, suggesting that there is room for more upside in the Aussie pair.”
“Aussie buyers need acceptance above the July 31 high of 0.6740 on a daily closing basis to unleash further upside toward the 0.6800 round figure. The next upside barrier is seen around the 0.6850 region. On the downside, strong support is envisioned at Friday’s low of 0.6600, below which a test of the 200-day Simple Moving Average (SMA) at 0.6580 will be on the cards. The last line of defense for buyers is seen at 0.6550.”
Economic Indicator
Australia RBA Rate Statement
Decisions regarding this interest rate are made by the Reserve Bank Board, and are explained in a media release which announces the decision at 2.30 pm after each Board meeting.
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If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
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Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
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If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
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The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure.
Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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