RBA Signals Caution on Further Rate Cuts Amid Tight Labor Market Pressures
Australia's central bank, the Reserve Bank of Australia (RBA), has expressed caution over the prospect of further interest rate reductions despite ongoing inflation concerns.
Governor Michele Bullock acknowledged the strength of the labor market, which could hinder efforts to bring down inflation to its target range of 2-3%. "We are alert to the possibility that the labor market is signaling strength in the economy, which could delay the disinflation process," Bullock said.
The RBA recently reduced rates by 25 basis points, but Bullock stressed the bank's data-driven approach and the need for patience. "We are not pre-committed," she said. "We're going to be data driven on this."
However, the central bank cautioned against expectations of rapid additional rate cuts. Despite a decline in inflation and wage growth, the labor market remains tight, with the unemployment rate hovering near 4%. This could fuel cost pressures and prevent core inflation from slowing as anticipated.
Deputy Governor Andrew Hauser emphasized the bank's ongoing assessment of the situation, acknowledging the potential for error. "If we're wrong and inflation moves more quickly downwards, you could celebrate that fact and policy will need to respond," he said.
Investors currently perceive a low likelihood of a further rate cut in April (17%), with a more significant probability (70%) priced in for May. For the year, the market anticipates a modest 40 basis points of policy easing.