Australian Dollar: Policy risks balanced as inflation lingers – Standard Chartered

Standard Chartered’s Nicholas Chia reports that the Reserve Bank of Australia (RBA) kept the cash rate at 4.35% in a unanimous decision, as widely expected. Chia notes the RBA sees inflation returning to the midpoint of its 2–3% target only by late 2027. While the base case is for no further hikes, the risk is skewed to another increase in Q4 if demand and energy prices remain problematic.

RBA holds but keeps hike option

"The RBA held the cash rate at 4.35%, as we and the market had expected, in a unanimous decision (see RBA – Holding its nerve). The RBA reiterated that price pressures remain too high for comfort amid longstanding capacity pressures and an additional inflation impulse from higher fuel prices."

"It expects inflation to only return to the midpoint of its 2-3% range by late 2027 and cited the impact of tighter financial conditions on activity as the labour market and housing prices eased, alongside tentative signs of slowing consumer spending growth."

"At the press conference, Governor Bullock talked up the uncertainty around the RBA’s central forecasts and did not rule out the need for more policy tightening in the immediate future if upside inflation risks materialise."

"Our base case remains no more RBA rate hikes in the foreseeable future. The risk to our view is skewed towards a hike in Q4 if demand does not slow sufficiently or if energy prices revisit recent highs, exacerbating both capacity and price pressures."

"Ultimately, we think easing labour-market conditions, if sustained, should help contain underlying wage and price pressures in the economy."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)