Reserve Bank of Australia held the cash rate at 4.35% as expected, saying it may
take further action if needed. The committee noted financial conditions have
tightened after prior rate increases and reaffirmed it will raise the cash rate
target again if required to meet its objectives. Overall and core inflation
remain too high and could stay elevated for some time; short-term inflation
expectations have eased but are above levels at the start of the year. The RBA
said the economy has shown signs of slowing following rate rises, but domestic
activity and the inflation outlook remain uncertain. Global oil supply issues
are likely to persist, keeping upward pressure on energy prices and inflation;
high oil prices are already filtering into goods and services. In the governor’s
press remarks he said a rate rise was not under consideration at this meeting,
but further tightening is not ruled out and waiting for clearer inflation relief
could be too late. He reiterated that demand must slow to reduce inflation,
inflation still poses upside risks, monthly data are volatile, he does not
expect a quarterly contraction, and the labor market remains somewhat tight at
a 4.5% unemployment rate.
