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Investing.com-- The Reserve Bank of Australia unexpectedly left interest rates unchanged on Tuesday, citing some uncertainty over cooling inflation and global trade headwinds from U.S. tariffs.
The RBA left its benchmark cash rate unchanged at 3.85%, ducking expectations that it would cut the rate by 25 basis points to 3.60%. The RBA’s rate setting board voted in a 6-3 majority to keep rates unchanged.
The board judged that it could wait to seek more clarity that inflation was cooling, while also raising concerns over international economic headwinds, especially as the full scope of U.S. trade tariffs remained unknown.
The RBA noted that while Australian inflation had cooled substantially from a 2022 peak, recent monthly consumer price index inflation data read slightly stronger than expected, sparking some caution.
“With the cash rate 50 basis points lower than five months ago and wider economic conditions evolving broadly as expected, the Board judged that it could wait for a little more information to confirm that inflation remains on track to reach 2.5 per cent on a sustainable basis,” the RBA said in a statement.
The central bank was widely expected to cut rates by 25 bps for a third time this year, after it kicked off an easing cycle in February. Cooling Australian inflation and economic growth, coupled with increased trade headwinds due to high U.S. trade tariffs, drove the central bank to ease monetary policy.
But the RBA cautioned on Tuesday that U.S. trade policy remained uncertain, and that on the domestic front, a recovery in demand and spending was showing some signs of stalling. Still, the labor market remained tight.
The RBA reiterated that maintaining price stability remained its top priority, and that monetary policy remained “well placed” to respond to changes in the global economy.
“The Board is focused on its mandate to deliver price stability and full employment and will do what it considers necessary to achieve that outcome,” the central bank said.
Australia’s ASX 200 stock index fell 0.2% after the RBA decision, given that markets were widely expecting a cut. The Australian dollar’s AUD/USD pair, however, soared 0.7%.