At its final meeting of the year, the RBA (Reserve Bank of Australia) decided to maintain its cash rate at 3.60%, in line with expectations. A decision driven by domestic demand that is stronger than expected, which is likely to intensify pressure on production capacity.
Markets did not expect rate cuts this week, in a backdrop of solid growth, persistent inflation and higher household expenditure. The Australian dollar remained steady after the announcement, before firming slightly when Governor Michele Bullock ruled out any near-term rate cut. "If inflation persists, it will raise questions about monetary policy," she warned at a press conference.
The RBA has already cut rates three times this year, although inflation has risen again, reaching 3.8% in October. Core inflation, measured by the trimmed mean CPI, stands at 3.3%, above the 2%-3% target range.
Australian economy in good shape
The central bank stressed uncertainties surrounding the evolution of the economy and inflation, as well as the lagged effects of its monetary policy. The Australian economy posted its strongest quarterly growth in two years, driven by business, household and public-sector spending. The job market remains dynamic, with unemployment at 4.3% in October. The housing market is hitting new highs, while growth in lending and the resilience of financial markets suggest that monetary conditions are less restrictive than they appear.
