RBA slows easing cycle with a rate hold, cites | Australian Markets

The Reserve Bank of Australia (RBA) has signalled its return to a more ‘steady’ and ‘measured’ rate easing cycle by holding the official money rate at 4.10 per cent, following the 25 basis-point discount introduced as its first coverage determination of 2025.

The RBA Board cited growing uncertainty regarding the international outlook and a want to review the upcoming quarterly inflation numbers, as US President Donald Trump additionally gears up to announce a host of tariffs to be imposed on a number of nations across the world, together with Australia.

In a assertion made by the Board in the present day, it additionally confirmed that native “monetary policy is well placed to respond to international developments if they were to have material implications for Australian activity and inflation”.

“Inflation has fallen substantially since the peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance,” the assertion stated.

“Recent data means that underlying inflation continues to ease in line with the newest forecasts revealed within the February Statement on Monetary Policy. Nevertheless, the Board must be assured that this progress will proceed in order that inflation returns to the midpoint of the goal band on a sustainable foundation.

“It is subsequently cautious in regards to the outlook. Uncertainty in regards to the outlook overseas additionally stays important. On the macroeconomic coverage entrance, current bulletins from the United States on tariffs are having an impression on confidence globally and this could doubtless be amplified if the scope of tariffs widens, or different nations take retaliatory measures.

“Geopolitical uncertainties are additionally pronounced. These developments are anticipated to have an antagonistic impact on international exercise, significantly if households and companies delay expenditures pending larger readability on the outlook. Inflation, nevertheless, may transfer in both direction.

“Many central banks have eased monetary policy since the start of the year, but they have become increasingly attentive to the evolving risks from recent global policy developments.”

The Board additionally indicated that whereas its determination had been based mostly on proof that “real household incomes have picked up” and that there was “an easing in some measures of financial stress”, different information units and indicators instructed that “labour market conditions remain tight”.

“Despite a decline in employment in February, measures of labour underutilisation are at relatively low rates and business surveys and liaison suggest that availability of labour is still a constraint for a range of employers. Wage pressures have eased a little more than expected but productivity growth has not picked up and growth in unit labour costs remains high,” the Board’s assertion stated.

“There are notable uncertainties in regards to the outlook for home financial exercise and inflation. The central projection is for growth in family consumption to proceed to increase as income growth rises. But there may be a risk that any pick-up in consumption is slower than anticipated, leading to continued subdued output growth and a sharper deterioration within the labour market than presently anticipated. Alternatively, labour market outcomes could show stronger than anticipated, given the signal from a vary of main indicators.

“More broadly, there are uncertainties regarding the lags in the effect of monetary policy and how firms’ pricing decisions and wages will respond to the demand environment and weak productivity outcomes while conditions in the labour market remain tight.”

The RBA re-affirmed its dedication to “sustainably returning inflation to target within a reasonable timeframe”, but additionally suggested that it’ll proceed to consult with information and the evolving nature of key trends to make additional coverage selections.

“This is constant with the RBA’s mandate for price stability and full employment. To date, long term inflation expectations have been constant with the inflation goal and it’s important that this stay the case.

“The Board’s assessment is that monetary policy remains restrictive. The continued decline in underlying inflation is welcome, but there are nevertheless risks on both sides and the Board is cautious about the outlook.”

According to economists and market commentators, the choice didn’t essentially come as a shock.

“Today’s Reserve Bank decision to keep interest rates on hold is not a surprise as further cuts will hinge on there being more evidence that consumer demand is weakening and inflation is continuing to decline,” Dr Grant Feng, Vanguard Senior Economist, stated.

“Vanguard just isn’t anticipating any additional rate reductions in Australia till the second half of 2025. The fundamental elements maintaining charges on the present stage proceed to be Australia’s tight jobs market and the continued acceleration in authorities spending. Expansionary public demand has offset the impression of greater charges on non-public demand and this development is prone to proceed, as indicated on this yr’s federal authorities price range.

“Meanwhile, household net wealth has increased to record high levels, offsetting the impact of higher interest rates. Combined with a resilient labour market, this suggests the economy is still operating close to full capacity. In addition, ongoing global developments pose considerable risks to Australia’s economic and inflation outlook and warrant a cautious policy stance on interest rates.”