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Investing.com-- The Reserve Bank of Australia left interest rates unchanged as widely expected on Tuesday while flagging some progress towards bringing down inflation, although it remained largely cautious over an uncertain outlook.
The RBA left its benchmark cash rate at 4.1%, after cutting the rate by 25 basis points in February.
Tuesday’s hold was widely expected by markets despite recent declines in Australian inflation and the labor market, with the RBA expected to keep away from any big changes before the federal elections in early-May.
The central bank noted that inflation was declining in line with its forecasts. But the RBA also noted that risks remained for a rebound in inflation, keeping the central bank cautious over the outlook.
The RBA flagged a largely data-driven approach to further easing, and reiterated that sustainably returning inflation to its 2% to 3% annual target remained its highest priority.
The RBA also flagged some caution over U.S. trade tariffs and their impact on the global economy, which, coupled with increased geopolitical tensions, could have a detrimental effect on growth.
The central bank noted that Australia’s labor market remained tight, while productivity growth had not picked up. While the RBA expects domestic consumption to improve as income growth rises, there remains a risk that consumption will be slower than expected, which will further dent productivity and spur a sharper-than-expected decline in the labor market.
Recent declines in inflation, the labor market, and consumer spending saw analysts bet that the RBA will trim rates by 25 bps in May, after the elections. But the RBA’s easing cycle is expected to be shallow amid heightened uncertainty over Australian inflation and economic growth.