The Reserve Bank of Australia has left the official cash rate unchanged at 4.35 per cent, choosing to pause after raising interest rates three times already this year.

The decision was widely expected. Inflation remains above the RBA’s 2-3 per cent target range, while the economy is slowing and households continue to feel the strain of higher borrowing costs.

Importantly, however, the accompanying statement contains no indication that interest rate cuts are on the horizon. Instead, the RBA board reaffirmed that it is focused on price stability and will do what it considers necessary to achieve that outcome, including increasing the cash rate target further if required.

While another prolonged pause remains the most likely outcome, the next move is more likely to be another rate hike than a rate cut.

The inflation fight is not over

The strongest reason for keeping rates unchanged is that inflation has not yet been brought fully under control.

Headline inflation eased to 4.2 per cent in the year to April, down from 4.6 per cent in March. But underlying inflation remains more concerning.

The key underlying measure, the trimmed mean inflation rate, rose to 3.4 per cent from 3.3 per cent, suggesting broad-based price pressures remain sticky.

The RBA said “headline and underlying inflation are still too high”. It warned that inflation is likely to remain high “for some time” as higher fuel prices feed through to the prices of other........

© The New Daily