By David Winning
SYDNEY--The Reserve Bank of Australia held interest rates steady at its first board meeting under new Gov. Michele Bullock, but it kept the door open to potentially tighten policy again amid a tough battle to tame inflation.
The RBA maintained the cash rate at 4.10%, representing its fourth consecutive meeting on hold. The decision was widely expected by economists despite an uptick in inflation to 5.2% in the 12 months to August, from 4.9% in July.
In a commentary accompanying the rates decision, the RBA said inflation remained too high but recent data are consistent with it returning to the central bank's 2%-3% target range, with output and employment continuing to grow.
"Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will continue to depend upon the data and the evolving assessment of risks," said Bullock, who replaced Philip Lowe as governor when his seven-year term ended in mid-September.
Global central banks are facing renewed inflationary threats from resurgent energy and commodity prices, while rents in many countries stay stubbornly high. Higher prices of gasoline, for example, largely drove the August inflation increase in Australia.
The RBA has raised the cash rate by 400 basis points since May 2022 and economists are divided over whether interest rates will need to go up again to ensure inflation returns to the RBA's target band. A recent review of the central bank put more stress on inflation hitting the middle of that range.
Market pricing ahead of Tuesday's decision suggested a 40% chance of an interest-rate hike in November, strengthening to a 90% probability by March, according to Westpac. At the same time, some banks such as Goldman Sachs are pushing out expectations for when the RBA might start cutting rates.
Recent Australian economic data have been mixed, with second-quarter GDP growth beating expectations even as consumer spending remains subdued due to higher home loan repayment costs and costlier goods and services.
How wages continue to respond to inflation remains a focus of the RBA and economists. In June, Australia's Fair Work Commission, the country's wage umpire, announced a hefty 5.75% increase in the minimum wage. That rise came as state governments were also removing barriers preventing workers from pushing for bigger wage increases.
However, RBA board member Ian Harper told The Wall Street Journal last month that there is no evidence of a developing wage-price spiral. Harper said in the interview that recent large enterprise-based wage agreements were mostly modest in size and factored in small increases in future years.
Economists are also closely watching moves in energy prices. Brent crude, the global benchmark, is up around 5.6% since the start of January, although a rally that began in early September when Saudi Arabia and Russia said they would restrict supplies until the end of the year has faded in recent sessions.
Oil is priced in U.S. dollars and Australia is a net importer of crude. With the Australian dollar weakening 7.6% against the U.S. dollar since mid-July, that has made the cost of importing crude oil more expensive, which is reflected in higher pump prices for motorists.
Write to David Winning at email@example.com
(END) Dow Jones Newswires