The Reserve Bank of Australia (RBA) has left interest rates unchanged at 4.35%, a decision expected by the foreign exchange market. Additionally, the RBA stated that it is not ruling out the possibility of raising rates if needed despite having lowered its inflation forecasts.

The bank noted that inflation fell from December to January, although it remains high at 4.1%. This decline is attributed to steady decreases in price inflation and domestic pressures to reduce inflation.

However, the RBA estimates that inflation will return to the desired numbers by 2025, which is between 2% and 3%. It should also be added that there may be an uncertain outlook as the market may suffer from lagged effects from monetary policy and how the Australian dollar (AUD) will respond in the foreign exchange market in addition to seeing how companies react to pricing and wage setting when their economic growths have been slower than expected. The outlook for household consumption remains uncertain.

The priority is for inflation to return to levels within the Reserve Bank of Australia’s target

In the present scenario, the Reserve Bank of Australia’s top priority is to get inflation back to levels set by the central bank within a reasonable time. Although the RBA has said that inflation has declined in the country, there is still time for it to move steadily towards the target numbers.

Therefore, the Reserve Bank of Australia has informed that the interest rate path that will give the best performance and guarantee that inflation returns to its target level in a reasonable time will also depend on both the evaluation of the data and the risks themselves and that the possibility of raising interest rates again cannot be ignored. It should not be forgotten that every time the bank decides to raise rates, this directly affects the Australian currency’s (AUD) value, which will likely lose value against the US dollar (USD).

Furthermore, the Reserve Bank of Australia’s board of directors will pay attention to what happens in the first days, the evolution of markets around the world, the outlook for the labor market, inflation, and domestic demand.