Australia's central bank kept interest rates unchanged as scheduled and warned of increased inflationary pressures in the economy.

The Reserve Bank of Australia on Tuesday kept its key interest rate unchanged as scheduled, while warning of increased inflationary pressures in the economy and reiterating that future policy direction will be determined by the latest data. All nine members of the Reserve Bank's monetary policy committee agreed to maintain the cash rate at 3.6%, citing higher-than-expected consumer price index growth in the previous quarter and ongoing tightness in the labor market. The committee stated, "Recent inflation data suggests that there may still be some inflation pressures in the economy." "Given the recovery in private demand and the continued tightness in the labor market, the committee deemed it appropriate to keep the cash rate at its current level at this meeting." At the time of the Reserve Bank of Australia's interest rate decision, economists from institutions such as Goldman Sachs and Commonwealth Bank of Australia widely believed that the RBA's easing cycle had ended. The market generally predicts the next rate cut by the RBA will be in May 2026. Analysts point out that risks of rising inflation, amidst ample household cash reserves and expectations of economic growth, are prompting the RBA to proceed cautiously. While the Reserve Bank of Australia remains on hold, the Federal Reserve had cut interest rates for the second consecutive week last week. Despite the hawkish inclinations of several policymakers, including Fed Chair Powell, the market still sees a possibility of another rate cut by the Fed in December. Meanwhile, the market expects the Bank of England to also hold steady on Thursday, as it grapples with inflation pressures. Callam Pickering, economist at Indeed Inc, stated, "The RBA finds itself in a difficult position. The trimmed mean inflation rate is clearly too high, but the economy remains weak, and the labor market is slowing down. Geopolitical uncertainties persist, and while financial markets largely overlook them, they could still impact the economic environment." The Reserve Bank of Australia also released its quarterly macroeconomic forecasts on Tuesday, indicating that core inflation is expected to remain above the upper limit of the 2% to 3% target range by mid-2026, while the labor market is expected to remain broadly stable. The latest forecasts assume a rate cut in the second quarter of next year. The RBA stated that the better-than-expected CPI report for the third quarter "indicates that potential inflation pressures may be slightly higher than previously assessed," and recent data trends further support the possibility that "there may be slightly higher capacity pressures in the economy." Domestic economic data in Australia presents a mixed picture. On one hand, the rise in private demand indicates signs of an economic upturn. On the other hand, some indicators raise concerns about a "stagflation-like scenario." The latest data shows a rebound in credit growth, with house prices hitting a record high in October, indicating that financial conditions are not overly tight. Meanwhile, Australian manufacturing registered its first contraction since the beginning of the year in October, and employment numbers saw their first decline in eight months. This is a worrying signal for the unemployment rate, which currently stands at 4.5%, the highest level since September 2021. According to data released on Monday, private job ads in October declined for the fourth consecutive month, down 7.4% year-on-year. Nonetheless, RBA Governor Michele Bullock recently stated that the labor market "remains somewhat tight." Internationally, uncertainties remain high, with the protectionist policies of the Trump administration and escalating geopolitical tensions casting a shadow over Australia's economic outlook. RBA officials have repeatedly stated that the worst tariff scenario has not materialized, and most countries have not retaliated against the US. The "truce" between China and the US last week also eased market tensions. The RBA stated in its announcement, "There are still many uncertainties in policy evaluation, including whether monetary policy remains slightly tight, the lagged effects of recent monetary easing, the balance between demand and potential supply of goods and services, labor market conditions, and prospects for productivity growth. These uncertainties present dual risks in terms of inflation and employment prospects."