RBA Set to Hold Interest Rates Amid Inflation Risks

The Reserve Bank of Australia (RBA) is expected to keep interest rates at 4.35% amid concerns over inflation and economic growth. According to BNY's Geoff Yu and David Tam, markets are losing confidence in the RBA's ability to hike rates as stagflation continues to pressure the economy.

The housing market is seen as a drag on demand due to wealth concentration, with even domestic banks describing it as 'broad-based weakening'. Weak productivity remains a challenge, with per capita GDP growth being one of the main downside risks to Australia's credit rating.

BNY notes that structural drags such as lack of terms-of-trade support and poor productivity are weighing on the economy. As a result, they believe a policy hold aligns with a cautious 'do no harm' approach from the RBA.