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The Reserve Bank of Australia (RBA) has paused its interest rate rising strategy, deciding not to move ahead with the 13th increase in 15 months.
Some analysts had expected the RBA to raise the rate to 4.35 per cent by an increase of 25bps though a 15bps rise was also possible.
The RBA will continue on its mission to get Australian inflation back towards the desired two to three per cent target level but has today offered the markets respite.
Australia’s inflation rate remains above five per cent, which is still far too high compared to the desired benchmark.
National Australia Bank (NAB) and Morgan Stanley both predicted on Monday that the RBA would lift the rate; while the Bank of America expected a pause from the Aussie central bank.
In a statement penned by RBA Governor Philip Lowe, it was revealed the bank paused rates due to uncertainty surrounding the current economic outlook.
“Inflation in Australia has passed its peak and the monthly CPI indicator for May showed a further decline. But inflation is still too high and will remain so for some time yet,” he said.
“While housing prices are rising again and some households have substantial savings buffers, others are experiencing a painful squeeze on their finances.
“There are also uncertainties regarding the global economy, which is expected to grow at a below-average rate over the next couple of years.”
City Index Senior Market Analyst Matt Simpson said he believes the latest pause doesn’t mark the end for future rate rises.
“Whilst a pause may come as a relief to some, I doubt we’re at the peak rate although we may not be far off,” he said.
“I think the UK is a great example of what can come if you try to tread on monetary-policy eggshells when inflation is involved, who have been forced to hike by 50bps so soon after considering a pause.”
