RBA lifts cash rate to 4.60%
The Reserve Bank of Australia increased its cash rate to 4.60% at its latest meeting. Governor Michele Bullock said the central bank will raise interest rates again if needed, but she also left open the possibility that the hiking cycle could end. She explained that the board only considered holding rates steady or raising them by 25 basis points as its options for the day.[S1]
Bullock warned that inflationary pressures are likely to persist longer than previously expected. She attributed inflation mainly to domestic capacity constraints. According to her, one upside risk to inflation has already materialized, while two others are building. She added that excess demand needs to be reduced, though a recession is not part of the central bank's central forecast.[S1]
Bullock downplays one CPI print, notes restrictive conditions
In her press conference, Bullock said the central bank should not place too much emphasis on the August consumer price index figure due the following day. That comment served as a caution against reading too much into a single strong inflation number as a signal for another rate hike. She also described financial conditions as restrictive, suggesting that existing policy is already weighing on demand.[S1]
Bullock further indicated that if inflation does come down, no additional rate hikes may be necessary. She said the rate increase could even be the last one this year if further upside inflation risks do not emerge or intensify. She also noted that the bond market is reacting in an orderly manner and that the central bank is monitoring the situation closely.[S1]
Market reaction and rate expectations
Traders continued to assign about a 41% chance that the cash rate would be lifted another quarter point in November, a level that barely shifted after the decision and Bullock's remarks to reporters. The Australian dollar, meanwhile, slipped from roughly 0.7015 US cents earlier in the day to around 0.6980. That decline appears tied to Bullock's suggestion that this increase should not automatically be read as the beginning of a fresh run of tightening.[S1]
