Under inflationary pressure, the Reserve Bank of Australia has remained unchanged for seven consecutive times.

Noted, the Reserve Bank of Australia (RBA) on Tuesday kept the benchmark interest rate at a 12-year high in an effort to contain stubborn inflation. Price pressures are hindering the Australian central bank from joining the global easing cycle. As expected, the RBA kept the cash rate unchanged at 4.35% for the seventh consecutive meeting and reiterated that no factors are being ruled out in its policy. The RBA is trying to sustain significant employment growth post the COVID-19 pandemic, hence inflation needs more time to decline. The committee stated in a release, "The board remains committed to returning inflation to the target, and will take necessary steps to achieve this," "Policy will need to have sufficient restraint until the board is confident that inflation is moving sustainably towards the target range." Investors have lowered expectations of a rate cut by the RBA in the near future, with policy-sensitive three-year yields erasing earlier losses and remaining almost unchanged at 3.55%. The currency rose to its highest level since July 2023. Stephen Spratt, rate strategist at France's Industrial Bank in Hong Kong, stated, "The RBA used the word 'sustainable' four times in its statement, emphasizing that a temporary decline in inflation is not enough to convince them to cut rates," "This seems to be a signal to the market not to over-interpret tomorrow's August CPI data, which is expected to fall back within the target range." It is expected that the monthly inflation data to be released on Wednesday will show CPI falling below 3% for the first time since August 2021, reflecting government energy subsidies and other measures. The RBA's decision highlights its unique position compared to other central banks. Last week, Federal Reserve Chairman Powell led his colleagues in a substantial rate cut aimed at sustaining the strong momentum of the US economy. Economists widely anticipate that the RBA's rate cutting cycle will begin in February, while financial markets expect the first rate cut to occur in December, with a two-thirds likelihood. RBA Governor Brock has repeatedly opposed recent calls for policy easing, predicting that the inflation rate will not return to the 2-3% target level until the end of 2025. This has made her a political target for the governing Labor Party and minority party members who are pushing for rate cuts. Brock stated that the board aims to ensure that price growth can sustainably return to the central bank's target level. Australia's latest core CPI is at 3.9%, significantly above the target level, driven mainly by non-discretionary spending such as insurance, education, and housing. The Australian job market remains strong, with an unemployment rate still at a low of 4.2%. The RBA's firm policy stance, coupled with political wrangling over upcoming changes in the board structure, has sparked criticism from local politicians towards the bank. The left-wing Greens have called on the government to use its reserved powers to mandate a rate cut by the RBA as a condition for supporting legislation to split the central bank into two entities - one for monetary policy and the other for governance. The government has rejected the Greens' proposal as "madness." In its statement on Tuesday, the RBA board highlighted foreign instability factors, stating that "geopolitical uncertainty remains prominent." This reflects escalating conflicts in the Middle East, with signs of widening tensions between Israel and Hezbollah. Economists suggest that one of the reasons behind Australia's sustained price pressures is the mismatch between monetary and fiscal policy. While government generosity has helped Australia recover from recession and boost the labor market, it has also made the RBA's job more difficult. The government denies accusations that its policies are fueling price increases. Research by The Pacific Bank released this week shows that the proportion of new public expenditure in the real economy for the June quarter has risen from an average pre-pandemic level of about 22.5% to a record 27.3%. Economist Pat Bustamante estimates that this ratio will reach 28% by the end of next year. Bustamante states, "The speed and scale of growth in the proportion of new public expenditure in the real economy is unprecedented."