The RBA left the cash rate unchanged at 4.35% at today's meeting. The decision was again unanimous (9-0) and the Monetary Policy Board retained its hawkish bias, vowing to hike rates further if inflation fails to slow in line with its forecasts to return to the midpoint of the 2-3% target band by around the end of next year. Market pricing was little changed following the meeting, still implying a roughly 50/50 chance of the RBA hiking once more this year.
Today's meeting contained few surprises after recent inflation and labour market was cooler than the RBA expected. In the June quarter, inflation was 3.9% in headline terms and 3.6% on a core basis, while the unemployment rate lifted to 4.4%. This led the RBA to lower its inflation forecasts this year in its latest Statement on Monetary Policy to 3.6% headline and 3.3% core, down from 4% and 3.5% respectively. However, inflation still isn't seen returning to target until late 2027 at the earliest - partly because market expectations for the cash rate are now lower than they were when they were plugged into the previous set of forecasts back in May. Meanwhile, the unemployment rate is now projected to gradually rise to a slightly higher peak of 4.8% over the next couple of years.
The tone from Governor Bullock at the post-meeting press conference was cautious, saying the discussion among policymakers was around monitoring the data to ensure inflation remained on track to come back to target. Tighter financial conditions following the RBA's three earlier rate hikes were working to slow demand - most notably in the housing market - but there were upside risks to the inflation outlook. In the Gulf, global oil supply remains disrupted and attempts to achieve a resolution have been found wanting. Domestically, the key concern is that productivity is too weak to sustain growth around its current pace (2.5%) without generating inflationary pressures. The next RBA monetary policy meeting is on 28-29 September.
