By James Glynn
SYDNEY--The Reserve Bank of Australia kept interest rates unchanged at a monthly policy meeting Tuesday, offering a reprieve to shoppers just ahead of Christmas, but the central bank continued to warn that persistent inflation could spark further tightening.
The official cash rate was left on hold at 4.35%, as expected by economists.
"Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks," RBA Gov. Michele Bullock said in a statement.
The decision to keep interest rates on hold means official interest rates in Australia remain well below those of other major economies such as New Zealand, Canada and the U.S.
The RBA has raised the OCR a record 13 times since May 2022, putting a massive strain on household budgets but also cooling inflation, which has fallen sharply from a peak of more than 8.0% last year.
Still, the RBA remains cautious about the country's economic outlook, warning about the risk that inflation expectations might become unanchored if home-grown price pressures remain persistent.
"There are still significant uncertainties around the outlook. While there have been encouraging signs on goods inflation abroad, services price inflation has remained persistent and the same could occur in Australia," Bullock added.
On a more optimistic note, Bullock said she doesn't expect wage growth to accelerate any further, after a spike in the third quarter.
"Wage growth is not expected to increase much further and remains consistent with the inflation target, provided productivity growth picks up," she said.
The RBA expects unemployment to rise through 2024, as the economic growth slows to a crawl.
Third-quarter GDP growth data on Wednesday is expected to show that the commodity-rich economy has lost momentum, although its current trajectory suggests it is likely to avoid a recession.
"With a slowing economy, fragile households, and waning confidence, the RBA has today delivered an early Christmas present to Australian households already feeling stressed by previous rate hikes," said Stephen Smith, partner at Deloitte Access Economics.
"Further increases in interest rates are not needed, though mortgage holders will need to be wary of an increasingly hawkish RBA ahead of the next interest rate decision in February 2024," he added.
The RBA's next policy meeting will be in early February when the policy-making board will have seen fourth quarter inflation data, and reviewed the bank's economic forecasts.
Write to James Glynn at james.glynn@wsj.com
(END) Dow Jones Newswires
12-04-23 2328ET
