Next Week, the RBA Could Hold Rates Due to Softer Inflation in Australia

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Australia’s softer-than-expected inflation rate could see the Reserve Bank of Australia (RBA) holding rates next week.

Australia’s latest monthly consumer price index for February rose to 6.8 per cent year-on-year, lower than January’s, providing further evidence that inflationary pressures across the economy are easing.

All 11 sub-groups tracked by the RBA in its monthly CPI figures recorded increases in February, with housing and food and non-alcoholic beverages prices leading the way with 9.9 per cent and 8 per cent rises, respectively, compared to the same period last year.

If there were doubts about whether the RBA will pause next week, today’s inflation report confirms it will. Given the RBA’s dovish hike, comments of pause from Governor Lowe, and an overall subdued inflation environment, it is almost certain that the central bank will hold interest rates when it meets next.

“I think the RBA has all the reasons they need to chill out, hold rates steady, and assess incoming data,” said Governor Lowe.

Despite the RBA cash rate futures implying a 95% chance of a hold at their meeting next week, some economists still argue that the bank should consider raising rates. This is despite the softer-than-expected inflation figures released today.

On the other hand, more dovish economists continue to argue for caution and maintain current interest rates until there is greater certainty of where inflation will stabilize over time. 

They point out that while wages have started to rise, they have been weak relative to recent periods, which could dampen consumer spending growth in the future.

With these developments continuing to provide some optimism for Australia’s outlook, all eyes are now on what action Reserve Bank Governor Philip Lowe will take during next week’s meeting amidst ongoing concerns about global trade tensions and slowing global growth.

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