Not ruling anything out (Il Sole 24 Ore Radiocor) - Sydney, 07 May - The Reserve Bank of Australia kept its cash rate target unchanged at 4.35% and the interest rate paid on Exchange Settlement balances unchanged at 4.25% as inflation continues to moderate but is declining more slowly than expected.

"The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the Board is not ruling anything in or out," the central bank said.

Higher interest rates have been working to bring aggregate demand and supply somewhat closer towards balance, but the data indicate continuing excess demand in the economy, coupled with strong domestic cost pressures, both for labour and non-labour inputs.

Conditions in the labour market have eased over the past year, but remain tighter than is consistent with sustained full employment and inflation at target.

Growth in wages appears to have peaked but is still above the level that can be sustained given trend productivity growth.

Meanwhile, inflation is still weighing on people's real incomes and output growth has been subdued, reflecting weak household consumption growth.

"The economic outlook remains uncertain and recent data have demonstrated that the process of returning inflation to target is unlikely to be smooth," the RBA said.

According to its central forecasts, based on the assumption that the cash rate follows market expectations, the RBA sees inflation returning to the target range of 2-3% in the second half of 2025, and to the midpoint in 2026.

In the near term, inflation is forecast to be higher because of the recent rise in domestic petrol prices, and higher than expected services price inflation, which is now forecast to decline more slowly over the rest of the year. Inflation is, however, expected to decline over 2025 and 2026.

The RBA pointed to the persistence of services inflation is a key uncertainty as it is expected to ease more slowly than previously forecast, reflecting stronger labour market conditions including a more gradual increase in the unemployment rate and the broader underutilisation rate.

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(RADIOCOR) 07-05-24 08:01:01 (0097) 5 NNNN