The Reserve Bank of Australia left the cash rate unchanged at 4.35% as widely expected, with the accompanying statement carried a distinctly hawkish tone. While policymakers acknowledged that financial conditions have tightened following three rate hikes this year and that the economy is slowing as expected, they repeatedly stressed that inflation remains a problem. The Board noted that “headline and underlying inflation are still too high” and warned that “inflation is likely to remain high for some time.”
A key focus of the statement was the impact of the Middle East energy shock. The RBA said that “higher fuel prices have added directly to inflation” and that there are signs these costs are now “passing through to the prices of other goods and services.” It also cautioned that the resolution of the conflict remains “at an early stage” and that global oil supply issues “will take some time to resolve,” suggesting policymakers are not yet ready to assume a rapid easing in inflation pressures.
Still, the statement stopped short of signaling that another rate hike is imminent. The Board highlighted slowing consumer spending, softer housing market conditions and a higher-than-expected unemployment rate as evidence that tighter policy is gaining traction. The overall message is more hawkish than a simple hold, but not hawkish enough to make an August hike the base case.
Instead, the RBA appears content to wait for additional data while retaining an explicit tightening bias, reiterating that “it will do what it considers necessary to achieve that outcome, including increasing the cash rate target further if required”.
