SYDNEY/PHILADELPHIA (Web Desk/Reuters) – Australia's central bank held interest rates steady on Tuesday as expected, while reiterating that it was not ruling out further increases if needed to control inflation.
Wrapping up its June policy meeting, the Reserve Bank of Australia (RBA) kept rates at a 12-year high of 4.35 per cent, where they have been since a hike in November last year.
Markets had wagered heavily on a steady outcome given the economy almost ground to a halt in the first quarter and wage growth had slowed by more than expected.
The decision comes as the Federal Reserve officials are clearly hinting at continuing with monetary tightening and just one cut in US interest rates this year, which had begun with high hopes of marked decrease in borrowing costs.
Although the Bank of Canada has become first among the G7 nations to slash the borrowing costs rates which was followed in the case of an eurozone interest rate cut by the European Central Bank (ECB), the stubborn inflation in developed countries is making harder for policymakers to reverse the cycle.
On Monday, Philadelphia Fed President Patrick Harker said the US central bank would be able to cut its benchmark interest rate once this year, if his economic forecast plays out.
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"If all of it happens to be as forecasted, I think one rate cut would be appropriate by year's end," Harker said in prepared remarks to an event hosted by the regional central bank in Philadelphia, after outlining his view that he sees slowing but above-trend economic growth, a modest rise in the unemployment rate, and a "long glide" back to target for US inflation as his base case.
The US central bank kept interest rates unchanged in the 5.25-5.50pc range at its policy meeting last week as it seeks to keep pressure on the economy to cool inflation back to the Fed's 2pc target rate. Inflation by the Fed's preferred measure was running at a 2.7pc annual rate in April.
The policy rate needs to remain unchanged for now, Harker added, in order to also mitigate upside risks, such as the potential long-term stubbornness of elevated shelter inflation and "the continually high rate of inflation in the services sector, notably auto insurance and repairs”.
Harker nevertheless did not rule out changing his view on rates as more economic data is parsed. "I see two cuts, or none, for this year as quite possible if the data break one way or another...we will remain data dependent," he said.
At the latest policy meeting, the median forecast among the Fed's 19 policymakers was for a single interest rate cut this year while financial markets currently expect two rate cuts by year-end.
Earlier, Minneapolis Federal Reserve President Neel Kashkari said it's a "reasonable prediction" that the US central bank will cut interest rates once this year, waiting until December to do it.
"We need to see more evidence to convince us that inflation is well on our way back down to 2pc," Kashkari said in an interview with CBS' "Face the Nation" programme.