Australia's central bank leaves its key rate unchanged, says inflation 'passed its peak'

The Reserve Bank of Australia is split on whether to raise interest rates.

Australia's central bank leaves its key rate unchanged, says inflation 'passed its peak'

Important Points

The Reserve Bank of Australia has set an inflation target of 2% to 3 %.

RBA Governor Philip Lowe stated in a press release that "further tightening may be necessary to ensure that the inflation returns to target within a reasonable period of time, but this will depend on how the economy and inflation develop."

He said that "inflation remains too high, and it will continue to be so for some time."

In May, the Australia Bureau of Statistics monthly inflation indicator showed a slight cooling of the price rise, with a 5.6% increase, led by food, housing and non-alcoholic drinks.

In December, Australia's monthly indicator of inflation peaked at 8,4%. Consumer prices rose by 7% during the first quarter 2023.

According to the minutes of its June meeting, this decision was made after the central banks raised its cash rate last month by 25 basis points. The move was described as "finely-balanced".

Time to Assess

Lowe stated in a statement on Tuesday that "the decision to keep interest rates unchanged this month gives the Board more time to evaluate the state of the country's economy, the economic outlook, and associated risks."

He said that the central banks will continue to closely watch developments in the global economic, household spending trends, and inflation forecasts.

According to IG Australia's market analyst Tony Sycamore, the central bank decided to keep rates unchanged to "assess the effects" of the rate increases that have been made.

Sycamore, a CNBC analyst, said that "the RBA's choice to hold rates today was partly based on the same reasons as the April pause -- to evaluate the impact of 400bp in rate increases or a total of 14 months."

The central bank, he said, seems to be less concerned with wage growth now. He cited Lowe's recent statement.

In an announcement, the central bank governor stated that "at the aggregate level, wage growth is still in line with the inflation goal, if productivity growth increases."

Belinda Allen, senior economist at Commonwealth Bank of Australia, said that she would be closely monitoring the next Consumer Price Index report.

Allen stated that the RBA has some time left to slow down its hike cycle.