By Stella Qiu and Wayne Cole
SYDNEY (Reuters) -Australia's central bank on Tuesday left its cash rate steady as expected at 3.60%, saying it was cautious about easing further given higher core inflation,
firmer consumer demand and a revival in the housing market.
Wrapping up a two-day policy meeting, the Reserve Bank of Australia (RBA) said recent data suggested inflationary pressures could remain in the economy, adding that it will update its view as data evolves.
Markets had seen little chance of a rate cut this week following an uncomfortably hot reading on third-quarter inflation, and also see scant prospect of an easing in December. [AU/INT]
The Australian dollar slipped 0.3% to $0.6521 as the RBA offered little guidance on the rate outlook, while three-year bond futures were down 2 ticks to 96.32. Swaps imply just a 10% chance for a move in December, with some betting that the entire easing cycle is over.
"The Board’s judgment is that some of the increase in underlying inflation in the September quarter was due to temporary factors," said the RBA board.
Noting financial conditions had eased this year and that there was uncertainty about whether monetary policy remained a little restrictive, "the Board judged that it was appropriate to remain cautious, updating its view of the outlook as the data evolve," it said.
The RBA has cut interest rates three times this year after assessing quarterly inflation data, but in the third quarter, core inflation surged to 3%, hitting the top of the 2-3% target band, as market services and housing costs stayed elevated.
Home prices jumped by the most in more than two years in October, adding to signs that financial conditions might not be as tight as thought. The RBA has said the cash rate of 3.6% was only slightly restrictive.
"Not only did the board concede that recent data suggests 'inflationary pressure may remain in the economy', but they also lifted their near-term inflation forecast substantially," said Harry Murphy Cruise, head of economic research and global trade for Oxford Economics Australia. "Underlying inflation is now forecast to rise even higher, hitting 3.2% in Q4 and staying there until the middle of next year. If that proves correct, interest rates won't move lower until the second half of 2026 at the earliest - if at all."
Complicating the picture for policymakers, the jobless rate spiked to a four-year high of 4.5% after a long period of holding largely steady and the recovery in consumer spending seemed to be patchy so far.
In its quarterly economic updates, the central bank now sees core inflation stuck above the 2-3% target band until mid-2026, limiting room for further rate cuts.
The Commonwealth Bank of Australia has said the current easing cycle is over, while National Australia Bank and ANZ still have one cut left in their forecasting profiles for next year. Westpac tipped two more cuts next year.
(Reporting by Stella Qiu; Editing by Sam Holmes)
