Australia’s central bank has decided to keep the cash rate on hold at 4.35% during its August meeting, maintaining a pause which has been in-play for the past six meetings.
The decision – which was predicted by all four major banks – means the cash rate has remained steady since November 2023, when it moved up from a previous reading of 4.10.
Investment bank analysts echoed these predictions, with Morgan Stanley, Citigroup and UBS all expecting the rate to remain on-hold in August, and two of these anticipated the RBA remaining hawkish on the pause until mid-2025, before cutting again.
Morgan Stanley was of the belief that rates could drop in May 2025, while UBS was convinced the cut would come in August of that year.
Head of FX Strategy Charu Chanana at Saxo had also anticipated that rates would remain at 4.35%, citing a somewhat optimistic inflation reading released on July 31, which showed mean CPI for the June quarter had been trimmed back to 3.9%, compared to 4.0% in March.
This data was higher than the RBA’s prediction 3.8% CPI for the June quarter, although the market had set its prediction at 4.0%.
“Last week’s softer than expected inflation report has eliminated the prospect of a rate hike from the RBA,” Ms Chanana said.
“The Overnight Index Swap (OIS) curve is now factoring in a November rate cut from the RBA, indicating the RBA is unlikely to support the AUD.
“The AUD is also under pressure due to a shift in global sentiment adversely affecting activity currencies.
“Additionally, the AUD is at risk due to the weakness in the Chinese economy, and is likely to lose ground against other activity currencies like the NZD, where rate cuts are largely priced in.”
Previous to the CPI reading, many economists had priced in a rate rise in August.
In its statement on Tuesday, the RBA committee said that longer-term patterns showed that inflation was a persistent issue, stating that ‘In year-ended terms, underlying inflation has now been above the midpoint of the target for 11 consecutive quarters.’
They also spoke of uncertainty about the future performance of the Australian economy overall, noting that while labour costs remained strong, there had been a lag in GDP growth, a rise in unemployment, and reports of businesses feeling under pressure.