The RBA left the cash rate on hold at 4.1% (and the ES rate at 4%) at today's meeting but has not shut the door on further rate increases. The Board was unmoved today following rate increases at the May and June meetings, decisions that were described as "finely balanced". As was the case in April, the Board elected to take stock of developments cautious of the risk of overtightening into an uncertain economic outlook.
Back in April, the Board left rates on hold only for it to then hike rates in May and June after judging that the risk of inflation staying above the 2-3% target band for longer had increased. Today's statement from Governor Philip Lowe used a similar justification to the April hold, highlighting that the decision gives the Board additional time to weigh up the lagged effects of rate hikes on the one hand with economic conditions on the other. In considering this balance, the Board is not yet settled in its view of whether interest rates are appropriately calibrated.
Despite not hiking today, the statement points out that the risks to an outlook of more persistent inflation from price and wage settings and the strength in the labour market are still on the radar. That said, there is recognition that a "substantial slowing" in household spending is weighing on the domestic economy and the outlook is for below-average growth offshore. Amid that backdrop, Governor Lowe said that the path to returning inflation to the target band while keeping the economy growing remained a ''narrow one''. '
All in all, today's meeting came across as the Board taking a more cautious view after it went in a more hawkish direction in May and June. The guidance that further monetary policy tightening '''may be required'' argues against extrapolating today's decision to a more extended pause, but rates in Australia are closing in on their peak. The emphasis for the Board remains on the data in determining how much further rates may rise.