Reserve Bank of Australia keeps rate at 4.1pc, leaves door open for more rate hikes

Australia’s cash rate has increased by 4 percentage points since May last year. Photo / File

The Reserve Bank of Australia (RBA) has opted to leave its cash rate target unchanged at 4.10 per cent but is keeping an open mind on future rate hikes.

Australia’s rate has increased by 4 percentage points since May last year.

“The higher interest rates are working to establish a more sustainable balance between supply and demand in the economy and will continue to do so,” the bank said.

“In light of this and the uncertainty surrounding the economic outlook, the board decided to hold interest rates steady this month,” it said in a statement.

The bank said growth in the Australian economy had slowed and conditions in the labour market had eased, although they remained very tight.

“The board remains alert to the risk that expectations of ongoing high inflation will contribute to larger increases in both prices and wages, especially given the limited spare capacity in the economy and the still very low rate of unemployment,” it said.

The bank would continue to pay close attention to both the evolution of labour costs and the price-setting behaviour of firms.

“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve,” the bank said.

The central bank is mandated to achieve an annual inflation rate of 2–3 per cent, on average, over time.

The case for the cash rate staying unchanged was boosted last week when official data showed inflation camel to 5.6 per cent for the year to May - the smallest increase since April last year.

Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.