RBA Sticks to Neutral Bias, Keeps Cash Rate at 12-Year High

-- Australia ’s central bank kept interest rates at a 12-year high in a widely anticipated move, while maintaining a neutral stance that surprised markets and sent the currency lower.S&P 500 Extends Gains in Final Minutes of Trading: Markets Wrap

“Markets likely expected the RBA to revert back its old guidance of ‘a further increase in interest rates cannot be ruled out’ given the Q1 inflation surprise,” said Alex Loo, a macro strategist at Toronto-Dominion Bank in Singapore. “Today’s unchanged guidance probably disappointed the hawks with the Australian dollar taking a hit and Australian rates rallying.”

Su-Lin Ong, chief economist for Australia at Royal Bank of Canada in Sydney, saw the RBA’s post-meeting statement as “near neutral.” While the RBA doesn’t publish dot plots or its own forecast track for the cash rate, Governor Michele Bullock has previously suggested it won’t need to wait for inflation to be inside the band before cutting. Even so, she has repeatedly pushed back against speculation of easing, reflecting the RBA’s forecasts that inflation will only return to target in the second half of 2025.

At the same time, the labor market remains tight with unemployment at 3.8%. Data out on Monday showed a gauge of job ads rose 2.8% in April to be up 36.5% from its pre-pandemic level.

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