Australia keeps key interest rate at 3.85%, waiting for evidence of slowing inflation

The Reserve Bank of Australia left its key interest rate unchanged at 3.85%. The decision is explained by the need for an additional analysis of the dynamics of inflation and an assessment of the sustainability of its decline.

Although the market expected a 25 basis point rate cut, the regulator took a more cautious stance. According to him, the current data is not enough to ensure that inflation is steadily moving towards the target level of 2.5%.

The consumer price index in May was 2.1% — the lowest level since October 2024. In the first quarter, the inflation rate reached 2.4%, which was also a four-year low. Nevertheless, according to the Central Bank, some indicators turned out to be "slightly stronger than expected", which strengthened the arguments in favor of a wait-and-see tactic.

Against the background of this decision, the Australian stock market index S&P / ASX 200 fell by 0.24%, while the Australian dollar strengthened by 0.79%. The foreign exchange market reacted positively, regarding the preservation of the rate as a sign of a cautious approach to changing monetary policy.

The macroeconomic situation in the country remains tense. GDP growth in the first quarter was 1.3%, which fell short of analysts ' expectations. The economy is facing a number of challenges: declining government consumption, weakening domestic demand, and falling export activity.

Despite the low unemployment rate and the presence of some growth points, overall business activity is slowing down. Against this background, expectations of monetary policy easing are growing in the expert community in the coming months.

Analysts predict that the rate cut may take place in August, when the Reserve Bank of Australia will have data on inflation for the second quarter. An additional factor speeding up a possible decision on a reduction may be new tariff measures that come into force in the near future.

According to economists, a timely rate cut can support domestic demand and compensate for external risks, without waiting for the situation to worsen.