By Stella Qiu and Wayne Cole
SYDNEY, Aug 11 (Reuters) – Australia’s central bank held its cash rate steady at 4.35% for a second straight meeting on Tuesday, saying the economy was slowing as expected, but warned it might yet hike again if needed to control inflation.
Wrapping up its August policy meeting, the Reserve Bank of Australia (RBA) said it would do what was necessary to bring inflation back to its 2% to 3% target band, including increasing the cash rate target further if upside risks materialise.
Markets had wagered on a steady outcome given inflation data had come in under forecasts in the second quarter, while the housing market had weakened more than policy makers had expected.
“The Board remains focused on ensuring that high inflation does not become embedded,” policymakers said in a statement.
“To achieve this, growth in aggregate demand needs to remain subdued to reduce capacity pressures and bring inflation back to target.”
The RBA has already raised rates by 75 basis points this year to fully reverse the amount of policy easing from 2025 as it struggled to contain stubborn inflationary pressures in the economy in the face of surging energy costs.
It judged the current cash rate to be slightly restrictive, but it has yet to rule out further policy tightening. Governor Michele Bullock said last month that a further slowdown in the economy may be required to bring inflation down.
The unanimous decision was largely as expected. The Australian dollar was flat at $0.7055, while three-year government bond yields reversed earlier rises to be flat at 4.55%.
Swaps imply around a 40% chance of another rate hike this year, lower than 50% from before.
HOUSING SLOWDOWN
Amid higher borrowing costs, a record boom in the housing market came to an abrupt end, with tumbling auction clearance rates, a plunge in loan applications and a slump in sales signaling tough conditions ahead.
However, consumer spending stayed solid, the labour market kept churning out more jobs and the recent re-escalation in the Middle East conflict kept policymakers wary of more pass throughs from higher oil prices to other parts of the economy.
The closely watched second-quarter inflation data surprised on the downside, giving the RBA room to hold fire this month. A trimmed mean measure of underlying inflation was unchanged at 3.6%, below the RBA’s own forecast of 3.8% but above the target band of 2% to 3%.
The RBA now expects inflation to ease back to the 2% to 3% target band in the second half of next year. Consumer price inflation, which peaked at 3.9% in the second quarter, is expected to ease to 3.6% by the end of the year and to 2.6% by the end of 2027.
(Reporting by Stella Qiu and Wayne Cole; Editing by Kevin Buckland)
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