Reserve Bank leaves Australia’s official interest rate unchanged at 4.35%

The Reserve Bank has left its key interest rate unchanged for a seventh meeting as the central bank waits for clearer evidence inflation is in retreat before it begins cutting borrowing costs.

The RBA ended its latest two-day board meeting on Tuesday by keeping its cash rate at 4.35%, the level its remained since November. The decision was as economists had expected.

Governor Michele Bullock has used recent speeches to stress the bank wouldn’t hesitate to lift interest rates if inflation veered off its trajectory towards an annual pace of 2%-3%.

Weak economic readings - including GDP expanding at its slowest rate since the 1990s excluding the pandemic – have stoked hopes the RBA would soon start cutting its interest rate.

However, on-going strength in the labour market, including the generation of extra 47,500 jobs in August, dimmed that optimism. Prior to today’s decision, investors were betting there was only about a 50-50 chance of a cut in the cash rate to 4.1% by the bank’s final board meeting in December.

Some central banks – with varying inflation targets – have begun cutting interest rates for the first time since the Covid pandemic. These include the US last week, New Zealand and the UK in August, and the European Union in June and September.

The RBA decision comes a day before the Australian Bureau of Statistics releases monthly inflation figures for August, with economists tipping a sub-3% headline pace for the first time in three years. For July, inflation was running at 3.5% in July, or the lowest in four months.

The ABS will provide the more complete inflation data for the September quarter on 30 October, or about a week prior to the RBA’s next board meeting.

Bullock will provide more details on the bank’s thinking at a media conference in Sydney starting at 3.30pm AEST.

More soon …