- The Reserve Bank of Australia held the cash rate at 4.35% for a second straight meeting on Tuesday, amid ongoing concerns about elevated inflation.
- Governor Michele Bullock indicated that a rate hike was discussed, stating it is 'quite possible' that rates may need to increase again to manage inflation risks.
- Following Bullock's comments, swaps now imply a 50% chance of a rate increase in November and an 80% likelihood by early next year.
- Earlier this year, the RBA raised rates by 75 basis points, fully reversing the amount of policy easing from 2025 as it struggled to contain stubborn inflationary pressures driven by surging energy costs.
The Reserve Bank of Australia (RBA) held its cash rate at 4.35% for the second consecutive meeting, amid ongoing inflation concerns. Governor Michele Bullock emphasized that further rate hikes are possible, stating, "it is quite possible we might need to go" if inflation risks materialize.1234
The RBA's decision comes as the economy shows signs of slowing, particularly in the housing market, where property prices in Sydney and Melbourne have declined following earlier rate hikes. Bullock noted that the board discussed a potential rate increase during the meeting, reflecting the re-escalation of conflicts in the Middle East and its potential impact on inflation.
Swaps markets now indicate a 50% chance of a rate increase in November and an 80% likelihood of a move by early next year. Bullock stated that the RBA is committed to controlling inflation, which is projected to return to the 2% to 3% target band by the second half of next year, a timeline she described as "reasonable" given recent economic shocks.5
Despite the current hold on rates, Bullock warned that the RBA remains vigilant, saying, "Today's decision should not be interpreted as an all-clear on inflation." She highlighted the need for subdued aggregate demand to alleviate capacity pressures and reiterated that the RBA would act if inflation remains above target for an extended period.
The RBA's cautious stance reflects broader economic challenges, including a shortage of construction resources due to increased investment in data centers, which Bullock identified as a concern for the residential construction sector.
“Bullock said the board discussed a hike this time, citing Middle East conflict and AI-driven demand, but chose to wait for more data. Swaps now imply an 80% likelihood of a move by early next year, while property prices could slump nearly 15%.”
The Guardian
