RBA Holds Cash Rate Amid Lingering Inflation Concerns

The Reserve Bank of Australia (RBA) maintained its cash rate at 4.35% in a unanimous decision, as widely expected. According to Standard Chartered's Nicholas Chia, this move is part of the RBA's attempt to balance policy risks and lingering inflation. The RBA sees inflation returning to its 2-3% target only by late 2027.

The central bank acknowledged that price pressures remain too high, citing capacity pressures and an additional inflation impulse from higher fuel prices. In a press conference, Governor Bullock emphasized the uncertainty around the RBA's central forecasts and did not rule out further policy tightening if upside inflation risks materialize.

Standard Chartered's base case is that there will be no further hikes, but they see a risk skewed towards another increase in Q4 if demand does not slow sufficiently or energy prices revisit recent highs. The bank believes easing labor-market conditions could help contain underlying wage and price pressures in the economy.