The Reserve Bank of Australia (RBA) has kept the cash rate unchanged at 4.35%, with the board determined to restore inflation to target levels and not ruling out any options to ensure inflation slows down.

At 11:30 AM on Tuesday, the RBA announced that it would maintain the cash rate at 4.35%, in line with market expectations.

In its statement, the RBA indicated that although recent data shows that inflation is easing, it remains high. The bank expects it will take some time for inflation to consistently enter the target range. The interest rate path that best ensures inflation returns to target within a reasonable timeframe remains uncertain, and the bank does not rule out any possibilities. Furthermore, the bank stated that the committee would rely on data and evolving risks for assessment and would continue to closely monitor global economic developments, domestic demand trends, and the outlook for inflation and the labor market. The board remains firmly determined to restore inflation to target levels.

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According to foreign media, the market currently expects the RBA to cut rates by a total of 43 basis points this year, higher than the 37 basis points before the statement was issued.

Economic experts have said that further easing of inflation coupled with economic weakness will provide room for the central bank to cut rates starting in September and alleviate pressure on mortgage holders.

PropTrack Senior Economist Eleanor Creagh stated that keeping the cash rate unchanged would further strengthen the confidence of buyers and sellers in the real estate market, thereby supporting the growth of property prices after a strong rise over the past 12 months. She said, "At the beginning of this year, the number of listed houses in Sydney and Melbourne is higher than usual, providing more choices for buyers. Demand has kept up with this increase, and many expect rates to fall in the second half of 2024, which could provide a positive impetus for economic activity."

After the RBA announced its interest rate decision, the Australian dollar fell sharply against the US dollar by more than 10 points.

The outlook remains "highly uncertain"

The RBA statement pointed out that despite encouraging signs that inflation is easing, the economic outlook remains full of uncertainty.

The statement indicated that national account data for the December quarter shows that economic growth has slowed, with household consumption growth particularly weak in the context of high inflation and rising interest rates. After the recent decline, real income has stabilized and is expected to start growing from current levels, which is expected to support consumption growth later this year.In addition, there is still a high degree of uncertainty regarding the impact of the Asian region's economy, the Russia-Ukraine conflict, and conflicts in the Middle East.

The Reserve Bank of Australia (RBA) pointed out: "Domestically, there is uncertainty about the lagged effects of monetary policy, as well as how businesses' pricing decisions and wages will respond to a slowdown in economic growth amid excess demand and a still tight labor market. The outlook for household consumption also remains uncertain."

The inflation target is expected to reach the midpoint in 2026

Regarding inflation, the RBA board stated that it is expected to return to the preferred range of 2% to 3% in 2025, but the midpoint may not arrive until 2026.

The report noted that as demand slows down and the growth of labor and non-labor costs decelerates, service price inflation is expected to gradually decrease. However, the RBA stated: "Although there are positive signs in the inflation of foreign goods prices, service price inflation remains high, and the same situation may occur in Australia."

Interest rate cuts or hikes?

ANZ Bank CEO Shayne Elliott believes that the market's expectations for interest rate cuts by the RBA are overly optimistic and warns that there may be no rate cuts this year. He said: "I still think inflation in Australia and around the world is more difficult than people imagine. We see wages growing quite well, and people will spend a little more money."

RateCity.com.au Research Director Sally Tindall stated that while the possibility of further rate hikes cannot be ruled out, the reality is that the RBA's next move is more likely to be a rate cut rather than a hike.