The Reserve Bank of Australia (RBA) has decided to keep interest rates unchanged at 4.35%, in line with market expectations. Despite growing speculation throughout the year about potential rate cuts, the central bank has opted for stability, citing persistently high core inflation as the key reason for holding off on any reductions.
Since the beginning of the year, there has been ongoing debate about whether the RBA would lower its target rate before the end of 2024. Many analysts across the financial industry had initially predicted possible cuts of 50 to 100 basis points. However, with inflation still above desired levels, particularly the core Consumer Price Index (CPI), the RBA has maintained its cautious stance.
The central bank’s focus remains on inflation control, despite some easing in headline inflation figures. Core inflation, a more stable measure that excludes volatile items, remains elevated. This has kept the RBA from making any significant moves to lower rates, as the risk of reigniting inflationary pressures remains high.
With only one more policy meeting scheduled for next month, the RBA's decision today reaffirms its commitment to maintaining price stability and ensuring the economy remains on track for sustainable growth. A major shift in interest rates is now highly unlikely before the end of the year.
Analysts and economists expecting sharp moves in the rate have had to adjust their forecasts, acknowledging that the current macroeconomic landscape doesn’t support significant rate cuts. Inflation, while easing, is not yet low enough to justify any rapid monetary easing.
The RBA’s decision to keep rates steady will likely continue to exert downward pressure on the Australian dollar, which has already been underperforming against the US dollar. The Australian dollar has seen declines in recent weeks, slipping to 65.82 from highs of 69.46. This trend is expected to persist as market participants adjust to the prospect of stable rates in the near term.
As the RBA looks to 2025, its focus will likely remain on inflationary trends, labor market conditions, and overall economic growth. For now, stability is the priority, and any potential rate cuts are likely to be pushed into the following year.
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