By James Glynn
SYDNEY--The Reserve Bank of Australia left interest rates on hold at its August policy meeting, stopping well short of joining other major central banks in talking about coming rate cuts and instead warning that inflation will remain a problem for some time yet.
The RBA's official cash rate was held at a 12-year high of 4.35%, where it has remained since November.
"Inflation in underlying terms remains too high, and the latest projections show that it will be some time yet before inflation is sustainably in the target range," the RBA's policy-setting board said in a statement.
"Data have reinforced the need to remain vigilant to upside risks to inflation and the board is not ruling anything in or out. Policy will need to be sufficiently restrictive until the board is confident that inflation is moving sustainably towards the target range," it added.
RBA Gov. Michele Bullock told reporters at a press conference that market pricing for near-term interest-rate cuts is not consistent with the outlook held by the central bank. The board is remaining vigilant to inflation risks, which implies "no near-term reductions in interest rates," she said.
Economists now expect the Australian central bank to lag well significantly behind its global peers in cutting interest rates, with core inflation expected to fall only slowly over the next year.
"Although the RBA left rates on hold today, it poured cold water on market expectations that it will loosen policy later this year. With the economy still running above its speed limit, and we continue to believe that rate cuts won't be on the agenda until mid-2025," said Abhijit Surya, economist at Capital Economics.
The RBA forecasts that trimmed mean inflation will still be hovering around 3.5% by the end of this year, still firmly above the targeted 2.0% to 3.0%.
Headline inflation will be lower due to the impact of recently implemented government rebates aimed at easing the cost of surging electricity prices, which the central bank said it will ignore to a large degree.
Meanwhile, the unemployment rate is forecast to rise slowly, reaching 4.3% by the end of the year, up from 4.1% currently.
The RBA chose to emphasize its ongoing anxieties in relation to inflation in its statement, instead of steering the policy narrative closer to that of other central banks that are either already cutting, or strongly indicating that they are about to.
In relation to the release of second-quarter inflation numbers last week, the RBA board said that "inflation is proving persistent."
In year-ended terms, underlying inflation has now been above the midpoint of the target for 11 consecutive quarters, it said, adding that quarterly underlying CPI inflation has "fallen very little over the past year."
While inflation is in the RBA's crosshairs, it also accepts that the economy is sluggish.
"Momentum in economic activity has been weak, as evidenced by slow growth in GDP, a rise in the unemployment rate and reports that many businesses are under pressure," the board said.
"There is a risk that household consumption picks up more slowly than expected, resulting in continued subdued output growth and a noticeable deterioration in the labor market," it said.
Global factors are also in play, with the central bank pointing to China as a key source of uncertainty and recent market instability.
"Globally, financial markets have been volatile of late and the Australian dollar has depreciated. Geopolitical uncertainties remain elevated, which may have implications for supply chains," the RBA said.
Write to James Glynn at james.glynn@wsj.com; @JamesGlynnWSJ
(END) Dow Jones Newswires
08-06-24 0403ET
