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RBA stays Put, Signals Pivot to Data Dependency

The Reserve Bank of Australia (RBA) has maintained its interest rates at 4.35%, the highest level in 12 years, suggesting that while further increases are possible, the threshold for such action is now significantly higher. RBA Governor Michele Bullock emphasized the persistent issue of high inflation, which led to a rate hike in November despite a decline in inflation in 2023 and the substantial mortgage debt burden in the economy.

The RBA's quarterly forecasts indicate that core inflation is expected to reach the midpoint of its 2-3% target only by 2026. The trimmed mean inflation measure, which filters out the most volatile items, was recorded at 4.2% in the final quarter of 2023.

Our Take: The RBA's statements largely echo those from other central banks. Although they do not exclude the possibility of further rate hikes, the focus seems to be shifting towards the timing of rate cuts. Inflation in Australia is also decreasing rapidly, and the real policy interest rate is now in positive territory. Consequently, it appears unlikely that Australia will be among the last to reduce rates.


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