Australia Interest Rate Held at 4.35%... "Two Cuts Expected in the Second Half of This Year"

Matches Market Expectations
Mentions of 'Not Ruling Out Interest Rate Hikes' Are Absent

The Reserve Bank of Australia (RBA) kept the benchmark interest rate unchanged as the market expected.

On the 19th (local time), the RBA held a monetary policy meeting and kept the benchmark interest rate at 4.35%. In the statement, it said, "We cannot be confident that the current interest rate level will bring inflation down to the target range (2?3%) within a reasonable period," and added, "Nothing should be pre-judged."

[Image source=EPA Yonhap News]

The RBA replaced the phrase "additional rate hikes cannot be ruled out," which it had used until last month, with "nothing is off the table." It also added, "Signs of inflation easing are emerging as expected." However, regarding the economic situation, it noted that household consumption recovery was particularly weak and described the situation as "still uncertain."

Following this statement from the RBA, the market is anticipating that the RBA may cut interest rates in the second half of this year. Tony Sikamore, an analyst at IG Securities, analyzed, "The RBA is expected to implement two rate cuts in August and November, lowering the benchmark rate to 3.85%."

Previously, to overcome the economic recession caused by the COVID-19 pandemic, the RBA lowered the benchmark interest rate to 0.1%. However, as inflation began to rise, it raised the benchmark rate 13 times from May 2022 to November last year, reaching 4.35%. Consequently, Australia's consumer price inflation, which had approached 8% annually, dropped to its lowest level in two years (3.4% annually) in January.

Due to the impact of the high benchmark interest rate, the economy contracted with GDP growth in the fourth quarter of last year (October to December) at only 0.2% quarter-on-quarter, and the unemployment rate rose to 4.1%. As a result, calls for interest rate cuts are growing again.