The Reserve Bank of Australia has left rates on hold at 4.1% in a widely anticipated decision that keeps the independent central bank on the sidelines amid a hotly contested election campaign.
In an accompanying statement that is likely to firm bets for a cut at the next meeting in May, the monetary policy board showed building confidence that inflation is returning to target – even if members remained “cautious about the outlook”.
“Inflation has fallen substantially since the peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance,” the statement said.
“Recent information suggests that underlying inflation continues to ease in line with the most recent forecasts published in the February Statement on Monetary Policy.”
Ahead of Donald Trump’s so-called announcement on the next round of tariffs in “liberation day” on 2 April, the RBA has become increasingly worried about the potential impact of rising protectionism and a global trade war.
The RBA was “well placed” to respond if international uncertainty encouraged households and businesses to delay their spending decisions, with the board noting falling business confidence resulting from Trump’s tariff announcements.
After delivering the country’s mortgage belt its first rate cut in more than four years, the RBA governor, Michele Bullock, in February warned borrowers not to expect another in quick succession.
Taking the guidance to heart, financial markets leading into the decision had ascribed a roughly one-in-ten chance of a cut, even as further evidence emerged last week that inflation was continuing to retreat into the RBA’s 2-3 per cent target range.
The February rate cut buoyed a government desperate to alleviate voter anger at the high cost of living, which households cite as their number one issue ahead of the 3 May poll.
The start of a new monetary easing cycle has already provided a fillip to the property market, with home prices hitting a new peak last month.
Attention now turns to the next two-day meeting on 19-20 May, when a number of economists tip a second cut.
Experts believe the additional spending in last week’s budget will not meaningfully add to inflationary pressures, and that the central bank will look through the impact on prices from extending energy bill relief to the end of the year.
The RBA is now weighing up the potential fall-out from Trump sparking a global trade war, which would add to the case for further monetary policy relief this year.
This month’s meeting, held over Monday and Tuesday, was the first of the newly established monetary policy board. In another first, board members were required to individually vote on whether or not to move rates, although those votes remain secret for now.
The monetary policy board includes the recently appointed Marnie Baker, a former CEO of Bendigo and Adelaide Bank, and Renee Fry-McKibbin.
Fry-McKibbin is an academic economist who led the sweeping RBA review that recommended splitting the existing board into interest rate-setting and governance functions.
Bullock will hold a press conference at 3:30pm, Sydney time.
More to come.