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Australia’s central bank shifts to neutral stance on interest rates


SYDNEY — The Reserve Bank of Australia moved to a neutral stance on interest rates as inflation cools quickly, suggesting a record run of hikes that stretched from May 2022 may be approaching an end.

The RBA kept the official cash rate on hold at 4.35% at the conclusion of its first policy meeting for this year. While it said rates may rise more, the central bank separately announced downward revisions to its inflation and growth forecasts.

“The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks, and a further increase in interest rates cannot be ruled out,” the RBA board said in a statement.

Investors’ attention has increasingly shifted to when interest rates in Australia might go lower. Financial markets moved last week to anticipate interest rate cuts by the middle of this year after inflation data for the final three months of 2023 showed price pressures to be in full retreat.

Still, there are reasons to believe the RBA will act cautiously. Rising rents, insurance costs and elevated electricity prices are among areas of persistent price pressure that continue to worry policymakers. Another complication to the inflation outlook is the crisis in the Red Sea where ships have chosen to bypass the Suez Canal because of the threat of attacks by Houthi rebels in the area around Yemen.



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