The Reserve Bank of Australia (RBA) maintained its Official Cash Rate (OCR) at 4.35% during its June meeting, aligning with market forecasts. This marks the fifth consecutive meeting that the RBA has kept the rate steady, following a 25 basis points hike in November 2023. The board also kept the interest rate on Exchange Settlement balances unchanged at 4.25%.
It comes after the release of important economic data which showed the trend unemployment rate ticked up in May, from 3.9 per cent to 4.0 per cent, which is its highest level in two years. In a statement accompanying its decision, the RBA Board indicated that unemployment will have to rise further to make sure inflation definitely comes down.
The central bank also cautioned again that inflation was still above the midpoint of the 2–3% target range. “The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome,” RBA Governor Michele Bullock stated.
“The economic outlook remains uncertain and recent data have demonstrated that the process of returning inflation to target is unlikely to be smooth,” the RBA Board said in a statement. “There is uncertainty around consumption growth.” it added. “There also remains a high level of uncertainty about the overseas outlook.”
Mortgage holders on a typical $600,000 loan are paying back about $1,450 more each month since the RBA kicked off its cycle of 13 rate rises in May 2022, according to RateCity.
The Australian dollar was little changed after the RBA decision, strengthening about 0.1 US cents to about 66.2 US cents. The yield on policy-sensitive three year bonds edged up while shares briefly pared some of the day’s gains before recovering to end 1% higher. Markets are fully priced for a rate cut by May 2025.
“We now expect just one rate cut this year in November and view a rate hike as a policy error,” State Street Global Advisors APAC economist Krishna Bhimavarapu said in a note.
Earlier this month, the Bank of Canada lowered its benchmark rate by 25 basis points earlier, making it the first Group of Seven central bank to kick off an easing cycle. The European Central Bank followed suit while the Swiss National Bank made its move to cut in March.
