The Reserve Bank of Australia governor Michele Bullock announced that the RBA has decided to hold the cash rate at 4.35 per cent, but warned she may be forced to lift interest rates next year if domestically driven inflationary pressures remain strong.
Bullock said the decision to leave the cash rate unchanged did not preclude the need for further interest rate rises.
“Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks,” Bullock said.
Both markets and economists had predicted that the RBA would leave the cash rate unchanged at its final meeting of the year, after data released over the past month showed the central bank was making progress on lowering inflation and slowing the economy.
The question for analysts is whether December quarter inflation data will force the RBA to deliver a 14th rate rise at its February 2024 meeting, or whether Tuesday’s decision marks the start of a protracted pause that may end with a rate cut at some point next year.
Bullock said higher interest rates were working to “establish a more sustainable balance between aggregate supply and demand in the economy”.