Reserve Bank of Australia holds cash rate at 4.35%, says inflation falling more slowly than expected

The Reserve Bank of Australia (RBA) left its cash rate target unchanged at 4.35% on 7 May 2024, and kept the interest rate paid on Exchange Settlement balances at 4.25%, while warning that inflation was declining more slowly than expected.

The consumer price index rose 3.6% over the year to the March quarter, down from 4.1% over the year to December. The Board said underlying inflation was higher than headline inflation and had declined by less, largely because of services inflation, which remained high and was moderating only gradually.

GUIDANCE UNCHANGED

The Board repeated that the path of interest rates that would best ensure inflation returns to target in a reasonable timeframe remained uncertain and that it was “not ruling anything in or out”. The same wording was used in its March statement, which had dropped language from February saying a further increase in interest rates could not be ruled out. The May statement did not signal that interest rate cuts were imminent.

The Board said it expected that it would be some time yet before inflation was sustainably in the 2–3% target range and that it would remain vigilant to upside risks.

FORECASTS

Central forecasts, based on the cash rate following market expectations, showed inflation returning to the target range in the second half of 2025 and to the midpoint in 2026. In the near term, inflation was forecast to be higher because of a recent rise in domestic petrol prices and higher-than-expected services inflation.

The Board said the data indicated continuing excess demand in the economy and strong domestic cost pressures. Labour market conditions had eased over the past year but remained tighter than consistent with sustained full employment and inflation at target, while household consumption growth had been particularly weak.