On Tuesday, the Reserve Bank of Australia (RBA) announced its decision to maintain the cash rate at 4.35 percent, a news that was welcomed by Australian Treasurer Jim Chalmers. The RBA's decision comes in the wake of its move to increase interest rates by 25 basis points in November to curb high inflation rates.
A Breather for Australians
Chalmers hailed the decision as welcome news for Australians grappling with the financial pressures of the festive season. An additional rate increase would have further strained citizens already wrestling with the impacts of previous rate rises, persistently high inflation, and the uncertainty of the global economic landscape. The Treasurer's comments echo the collective sigh of relief among Australians as they navigate an austere financial climate during a traditionally expensive period.
Impact on the Market
The decision to keep the cash rate steady disappointed the markets, leading to a dip in the currency and government bond yields. The neutral tone of the post-meeting statement added to the market's reaction. The Australian Dollar faced renewed selling pressure following RBA's anticipated pause.
The RBA chose not to implement further rate hikes until its next board meeting in February. This decision mirrored the Board's outlook that progress towards restoring inflation to the target range was slower than previously forecasted. The financial information received on the domestic economy since the November meeting aligns with these expectations. This move offered a respite to shoppers just ahead of Christmas, but the central bank continues to caution about the potential necessity for further tightening due to persistent inflation.