At today’s Reserve Bank of Australia (RBA) meeting, Governor Michele Bullock stated that a rate cut was “not considered,” although the board remained “alert” to some upside risks. While the possibility of a rate increase was discussed, the decision was made to hold the cash rate steady at 4.35%, a 12-year high. Bullock emphasized that the board is not ruling out any future rate changes and is focused on bringing inflation back within the target range.

Bullock noted that recent data, such as the higher-than-expected April CPI and mixed signals from consumption, have kept the board vigilant. The RBA’s statement highlighted persistent service price inflation and uncertainties around economic growth. Despite holding rates, the RBA remains “firmly hawkish,” according to State Street Global Advisors APAC economist Krishna Bhimavarapu, who expects only one rate cut later this year and views further rate hikes as potential policy errors due to Australia’s high household debt service ratio.

The federal budget’s outcomes might temporarily reduce headline inflation, but the RBA’s priority remains achieving sustainable inflation targets. The market’s reaction to the RBA’s decision was initially dovish, with slight dips in the Australian dollar, sharemarket, and bond yields before reversing. Insight Investment’s Harvey Bradley suggested that the RBA is likely to remain in a holding pattern for the foreseeable future, contrasting with other central banks’ dovish moves. The RBA will continue to rely on data to guide future rate decisions.