RBA Holds Cash Rate at 4.35% Amid Soft Economic Data

Highlights:

• The Reserve Bank of Australia (RBA) holds the cash rate at 4.35%, signaling confidence that inflation is falling, though risks remain.
• Economic growth and wages growth have come in softer than expected since the November meeting, prompting a more cautious stance.
• The RBA drops previous language about “not ruling anything in or out,” indicating reduced concern about the potential for future rate hikes.

The Reserve Bank of Australia (RBA) has decided to keep the cash rate on hold at 4.35%, marking a shift in its monetary policy stance. The central bank's decision follows growing confidence that inflation is on a downward trajectory, although risks persist. At the time of writing, this is the second consecutive meeting where the RBA has maintained the rate, signaling a more cautious approach in light of recent economic trends.

Dovish Statement Reflects Soft Economic Growth

In its post-meeting statement, the RBA noted that both economic and wages growth have been weaker than initially expected since the board’s November meeting. This has prompted the central bank to revise its outlook, with a clear acknowledgment that inflationary pressures are easing. However, the RBA remains cautious, emphasizing that risks to the inflation outlook are still present.

The statement also revealed a significant shift in tone, as the board dropped its previous language of “not ruling anything in or out” when discussing potential rate hikes. This marks a departure from prior statements, where the RBA kept its options open in response to uncertainties in the inflation outlook.

Future Outlook Remains Uncertain

While the RBA's decision to hold the rate at 4.35% reflects its belief that inflation is moving in the right direction, there is still caution regarding the broader economic environment. The board has highlighted that risks remain, particularly as it continues to monitor both domestic and global economic developments.

In the coming months, the RBA is expected to continue assessing economic data closely, adjusting its stance if necessary to ensure that inflation returns to the target range.

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