UOB’s economist Lee Sue Ann highlights softer Australian inflation and a cooling labour market as reasons for the Reserve Bank of Australia (RBA) to keep the cash rate at 4.35%. She notes still-elevated core inflation and a retained tightening bias, but forecasts no rate changes through at least 1Q27.

RBA expected to stay on hold

"We expect the RBA to hold rates at 4.35% in Jun, as softer headline inflation, a cooling labour market, and stagnant wages reduce the urgency for further tightening, even as the Bank maintains a tightening bias given still-elevated core inflation."

"For the RBA, the policy trade-off now appears to be more balanced."

"As such, we maintain our view that the RBA will keep the cash rate unchanged at 4.35% for the time being."

"Nevertheless, the Board is likely to retain a tightening bias, signaling that further hikes remain possible if underlying inflation or expectations fail to ease."

"However, after three rate increases this year, policy is already sufficiently restrictive, supporting a wait-and-see approach as the RBA assesses incoming data on second-quarter inflation, labour market trends, and household demand before deciding on any additional tightening."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)