RBA warns inflation risks remain skewed upside
- Reserve Bank of Australia leaves its official cash rate unchanged at 4.35% while warning that further interest rate rises remain possible.
- Financial markets indicate a 60% probability of a 0.25 percentage point rate increase by the end of the year.
- ANZ downgraded its housing market outlook, projecting a 4.3% decline in capital city house prices this year.
The Reserve Bank of Australia left the official cash rate unchanged at 4.35% while warning that persistent inflationary pressures could necessitate further policy tightening.
RBA Governor Michele Bullock stated that inflation risks remain skewed to the upside due to a strong labour market, construction demands driven by data centre developments, and geopolitical tensions in the Middle East.
"We've already raised three times, and we will go again if we need to, and I think personally that it’s quite possible we might need to go [again]. But we’ll wait and see what the data tells us," Bullock said.
Staff economic projections released alongside the decision indicate that productivity will shrink 0.5% this year, compounding central bank challenges in returning inflation to its target band.
Financial markets currently price in a 60% chance of a 0.25 percentage point rate increase to 4.6 per cent before the conclusion of the year.
The central bank previously initiated its monetary tightening cycle in February to combat re-emerging price pressures across the broader Australian economy.
Commercial lenders adjusted their housing forecasts following the policy announcement, with Australia and New Zealand Banking Group (ASX:ANZ) anticipating a 14.5% peak-to-trough decline in Sydney home values.
