As anticipated, the Australian central bank kept interest rates unchanged on Tuesday. This gave the bank additional time to evaluate the economy’s current status and choose whether or not to tighten further in the next year, even though the United States and Europe are projected to soften their monetary policy.

Following the conclusion of its policy meeting in December, the Reserve Bank of Australia (RBA) decided to maintain interest rates at a 12-year high of 4.35%. The RBA also stated that the economic data it had received since November when it introduced a quarter-point increase, was roughly in line with forecasts.

The markets had placed significant bets on a stable outcome because inflation had decreased more than anticipated in October. A modest reduction in the likelihood of a further increase to 4.6% in the new year was made, bringing the total to 38% from 43% before the decision to not make any changes.

Following previous drops, the local dollar continued its downward trend, falling 0.6% to $0.6581, while the rates on three-year Australian government bonds decreased by five basis points to 4.00%.

“Holding the cash rate steady at this meeting will allow time to assess the impact of the increases in interest rates on demand, inflation and the labour market,” the Reserve Bank of Australia Governor Michele Bullock.

Bullock stated that the data and the evolving assessment of risks would determine whether or not additional rate increases are necessary, which was consistent with the watered-down tightening bias he had maintained from the previous month.

As a result of rising living expenses, many mortgage holders have had their monthly payments increase by more than A$1,000 ($662) each month. This was the final opportunity for the Reserve Bank of Australia (RBA) to hike interest rates before its next meeting in February. It also brought Christmas respite to mortgage holders.

“The statement, in our view, was less hawkish than November’s and also less hawkish than we expected,” analysts from Barclays wrote in a letter to clients: “The statement was less hawkish than we expected.”

“We continue to think the hiking cycle is over, though we do note the bank’s data-dependent approach means the possibility of another hike after the Q4 inflation print.” These figures should be available by the end of January before the Reserve Bank of Australia’s subsequent meeting on February 6.

Bullock has sounded hawkish in her most recent public statements, warning that domestic demand has become an increasingly important driver of inflation, necessitating a more “substantial” reaction from interest rates. Inflation is anticipated to not return to the goal range of 2% to 3% until the latter half of 2025.

INFORMATION THAT IS LIMITED

The Reserve Bank of Australia (RBA) deemed the monthly inflation data for October, which showed a decline that was more than anticipated, to be inadequate to offer an update on services. At this point, it anticipates that salaries, which increased at a record rate during the previous quarter, will begin to fall, and the labor market will continue to be tight despite signs of relaxation.

Since May last year, interest rates have increased by 425 basis points, making this the most aggressive cycle on record. However, these increases have trailed behind their equivalents in other countries because the central bank is attempting to protect existing employment gains.

“I believe that their goal would be that the increased interest rate in November has eliminated some of those concerns around inflation, at least in the near term. Madeline Dunk, an economist at ANZ, stated that the global tale, in addition to really working in their favor, is probably also compelling.

The markets anticipate early and substantial rate cuts from the Federal Reserve of the United States and the European Central Bank in 2024. More than one hundred basis points are priced in, and there is a possibility that the Reserve Bank of Australia (RBA) might merely drop by fifteen basis points by the end of the following year.

“If we see a continuing momentum over there (fed rate cuts), it does support the case that they can be done at 4.35%,” the speaker said. The Federal Reserve As for the Reserve Bank of Australia (RBA), Dunk stated, “I believe they would want to keep the option open just in case.”