SYDNEY: Australia’s central bank kept its benchmark interest rate steady at 3.85% on Tuesday, resisting pressure for an immediate cut as policymakers seek more evidence that inflation is sustainably easing toward target.
The Reserve Bank of Australia’s decision surprised economists, most of whom had forecast a 25-basis-point reduction following softer-than-expected inflation data in May. The RBA said while recent indicators suggest inflation is moderating, the figures were “slightly stronger than expected,” warranting a wait-and-see approach.
“Returning inflation to target is our highest priority,” the bank said in its statement, reiterating its goal of achieving a 2.5% inflation rate “on a sustainable basis.”
Market Reaction and Economic Outlook
The Australian dollar jumped 0.79% after the announcement, while the S&P/ASX 200 dipped 0.24%. Economists now anticipate the RBA could pivot toward easing as early as August, when fresh quarterly inflation data will provide clearer signals.
Australia’s inflation slowed to 2.1% in May, its lowest since October 2024, but the economy faces headwinds, including sluggish growth and weakening consumer demand. First-quarter GDP expanded just 1.3%, below forecasts, as public spending contracted and exports faltered.
Treasurer Jim Chalmers acknowledged public frustration, calling the RBA’s move “not the result millions of Australians were hoping for.” Still, he emphasized “substantial progress” on inflation and pledged further cost-of-living relief measures.
Analysts See August Cut as Likely
Analysts argued the case for a cut was “strong,” given inflation’s return to target and looming global trade risks. “Building momentum now could shield the economy from potential tariff disruptions.”.
With new U.S. and EU tariffs set to take effect, analysts say the RBA may soon act to support growth. The next policy meeting in August could provide the clarity needed for a shift—if inflation trends hold.