Australia’s central bank left its key interest rate unchanged at a record low and repeated to maintain its supportive stance until inflation returns to the target range in a sustainable manner.
The policy board of the Reserve Bank of Australia headed by Governor Philip Lowe decided to maintain its cash rate target at 0.10 percent.
The Board will not increase the cash rate until actual inflation is sustainably within the 2 to 3 percent target range, Lowe said in the statement. While inflation has picked up, it is too early to conclude that it is sustainably within the target range.
The bank noted that the war in Ukraine is a major new source of uncertainty. The prices of many commodities have increased further due to the war in Ukraine.
The board is prepared to be patient as it monitors how the various factors affecting inflation in Australia evolve, Lowe added.
Although the bank highlighted the risks from the Ukraine war when it kept interest rates unchanged, an upside surprise in the first quarter inflation will trigger the first rate hike in June, Marcel Thieliant, an economist at Capital Economics, said. The economist expects headline inflation to surpass 4 percent before long.
“Despite a hot labor market, surging inflation, hikes from other central banks and rising bond yields, the Reserve Bank of Australia can still point to restrained wage growth as a reason for maintaining its accommodative policy stance, therefore failing to give any help to the Australian dollar,” Robert Carnell and Francesco Pesole, economists at ING said.