This article is from the source 'guardian' and was first published or seen on . The next check for changes will be

You can find the current article at its original source at https://www.theguardian.com/australia-news/2025/apr/01/rba-interest-rates-hold-today

The article has changed 6 times. There is an RSS feed of changes available.

Version 2 Version 3
RBA holds interest rates at 4.1% as markets predict cut soon after May election RBA holds rates at 4.1% but Michele Bullock says room for cuts if global trade war takes toll
(about 2 hours later)
Reserve Bank of Australia leaves cash rate unchanged amid hotly contested federal election campaign Reserve Bank of Australia governor says board did not ‘explicitly’ consider case for a rate cut on Monday and Tuesday
The Reserve Bank of Australia has left rates on hold at 4.1% in a widely anticipated decision that keeps the independent central bank on the sidelines amid a hotly contested election campaign. The governor of the Reserve Bank of Australia, Michele Bullock, says the central bank is ready and able to cut interest rates if needed to shield the economy from a damaging global trade war.
In an accompanying statement that is likely to firm bets for a cut at the next meeting in May, the monetary policy board showed building confidence that inflation is returning to target – even if members remained “cautious about the outlook”. Bullock made the comments after the central bank’s monetary policy board held rates at 4.1%, in a decision that was widely expected and clearly telegraphed by Bullock at the previous meeting in February.
“Inflation has fallen substantially since the peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance,” the statement said. The decision kept the independent central bank on the sidelines amid a hotly contested election campaign, although Bullock firmly rejected any suggestion that politics had swayed the board’s decision.
“Recent information suggests that underlying inflation continues to ease in line with the most recent forecasts published in the February Statement on Monetary Policy.” The board did not “explicitly” consider the case for a rate cut, Bullock said, and with no clear signal from the governor on the path of interest rates, the chief economist at Westpac, Luci Ellis, said “we still think that further cuts are in the offing, with the next one most likely in May”.
The board on Tuesday did not repeat its earlier warnings inflation could stop falling if interest rates were cut too early and that labour shortages were more intense than expected. For their part, financial markets trimmed the chance of a May 17 rate cut from 80% before the meeting, to about 70%, according to Westpac.
Before Donald Trump’s so-called announcement on the next round of tariffs in “liberation day” on 2 April, the RBA has become increasingly worried about the potential impact of rising protectionism and a global trade war. Bullock at a press conference on Tuesday told reporters that “we’ve come a long way, and it hasn’t been easy, but we have made good progress on bringing inflation down and keeping unemployment low”.
The bank was “well placed” to respond if international uncertainty encouraged households and businesses to delay their spending decisions, with the board noting falling business confidence resulting from Trump’s tariff announcements. “This is a good position for the economy to be in as we approach a period of uncertainty, but we have to be careful not to get ahead of ourselves. Inflation pressures remain and cost of living pressures are still very real for many Australians, the board will continue to look at the data to assess if the economy and inflation continue to evolve as expected.”
But the bank cautioned uncertainty about the outlook abroad “remains significant”. As the world waits US president Donald Trump to reveal his reciprocal tariff plan at an event in the White House rose garden on Wednesday (Thursday Australian time), Bullock made it clear that overseas events represented a growing headache for monetary policymakers as they near their goal of taming inflation without a big rise in unemployment.
“On the macroeconomic policy front, recent announcements from the United States on tariffs are having an impact on confidence globally and this would likely be amplified if the scope of tariffs widens, or other countries take retaliatory measures,” it said. Still, the governor on Tuesday reassured Australians that the country was “well placed” to weather any future storm should tit-for-tat tariffs degenerate into a global trade war.
After delivering the country’s mortgage belt its first rate cut in more than four years, the RBA governor, Michele Bullock, in February warned borrowers not to expect another in quick succession. “The economy is in a reasonable position. Inflation is coming down. Unemployment is still relatively low,” she said.
Taking the guidance to heart, financial markets leading into the decision had ascribed a roughly one in 10 chance of a cut, even as further evidence emerged last week that inflation was continuing to retreat into the RBA’s 2-3% target range. “The second point is that … when we went into the pandemic, interest rates were about 1.5%. They’re now much higher than that. If it turns out that there is a big growth impact in Australia, we do have room to move the [interest] rate to support there.
The February rate cut buoyed a government desperate to alleviate voter anger at the high cost of living, which households cite as their No 1 issue before the 3 May poll. “Now it does depend on what happens. The exchange rate will also come into play. It’s likely to absorb some of the impact. And it also depends on what’s happening with inflation as well, and that’s a little bit indeterminate.
The start of a new monetary easing cycle has already provided a fillip to the property market, with home prices hitting a new peak last month. “And the challenging bit might be, if growth slows but inflation kicks up, then we’re in a slightly different world.”
Attention now turns to the next two-day meeting on 19-20 May, when a number of economists tip a second cut. Bullock warned that the rising tide of trade protectionism was not a temporary phenomenon - although Trump’s enthusiasm for tariffs was an example of this trend “on steroids”.
Experts believe the additional spending in last week’s budget will not meaningfully add to inflationary pressures, and that the central bank will look through the impact on prices from extending energy bill relief to the end of the year. “I don’t think that there’s any sense in which what’s being talked about in the United States is transitory,” she said.
The RBA is now weighing up the potential fallout from Trump sparking a global trade war, which would add to the case for further monetary policy relief this year. “If you look at the direction of world trade policy over the last few years, it’s on steroids now, but the direction has been to less free world trade. That’s the direction things are going. There is going to be some permanence to these sorts of trade restrictions that we’re seeing now.”
This month’s meeting, held over Monday and Tuesday, was the first of the newly established monetary policy board. In another first, board members were required to individually vote on whether or not to move rates, although those votes remain secret for now.This month’s meeting, held over Monday and Tuesday, was the first of the newly established monetary policy board. In another first, board members were required to individually vote on whether or not to move rates, although those votes remain secret for now.
Bullock, however, told reporters that there had been “consensus” at the meeting.
The monetary policy board includes the recently appointed Marnie Baker, a former chief executive of Bendigo and Adelaide Bank, and Renee Fry-McKibbin.The monetary policy board includes the recently appointed Marnie Baker, a former chief executive of Bendigo and Adelaide Bank, and Renee Fry-McKibbin.
Fry-McKibbin is an academic economist who led the sweeping RBA review that recommended splitting the existing board into interest rate-setting and governance functions.Fry-McKibbin is an academic economist who led the sweeping RBA review that recommended splitting the existing board into interest rate-setting and governance functions.