Investing.com-- The Reserve Bank of Australia kept interest rates unchanged on Tuesday and warned that inflation was easing at a slower-than-expected pace, although the central bank did not directly threaten to raise rates further as some traders were expecting.
The RBA kept its official cash rate at 4.35%, in line with market expectations. The central bank left the rate unchanged for a fourth consecutive meeting after a surprise hike in November.
The bank warned that recent data showed inflation was easing at a slower pace than it expected, and that it was “not ruling anything in or out” in bringing inflation back to its 2% to 3% annual target range.
Still, the bank kept shy of directly threatening to raise interest rates further- a threat it had clearly stated in late-2023, but dropped from its recent announcements.
Markets were positioning for a more hawkish rhetoric from the RBA after Australian consumer price index inflation read hotter-than-expected for the first quarter, amid persistent stickiness in service costs. The reading also moved further above the RBA’s 2% to 3% annual target.
Service price inflation has remained a key point of concern for the RBA, with bank having offered repeated warnings on potential upsides to CPI from services. Tight Australian labor conditions have also largely factored into higher service costs.
The RBA reiterated its forecast that CPI inflation will fall within its annual target by mid-2025, and will hit the midpoint of its target range by 2026.
The central bank had hiked rates by a cumulative 425 basis points over the past two years, as it moved to curb a post-COVID spike in inflation. While the bank did not directly threaten to hike rates further on Tuesday, its comments still indicated that Australian interest rates will remain high for longer.
After the strong Q1 inflation data, markets were seen largely pricing out any expectations of rate cuts by the RBA in 2024.
Australian dollar dips, stocks jump
The Australian dollar’s AUDUSD pair fell 0.3% in the immediate aftermath of the meeting, given that the RBA still stopped short of directly threatening more rate hikes.
Conversely, Australia’s ASX 200 stock benchmark extended gains to trade 1% higher on bets that interest rates will not rise any further.