MNI BRIEF: RBA Pauses, Softens Language On Further Hikes

The Reserve Bank of Australia warned further tightening "may well be needed" Tuesday, despite keeping rates on hold at 3.6% and adding language on banking system problems in the U.S. and Switzerland. The Reserve’s language represents a softer stance than March’s statement, which stated further tightening “will be needed”.

The RBA’s decision to hold rates steady is its first pause since it started hiking rates from its record 0.1% floor in May 2022. The Reserve reiterated the view that the full effect of its 350bp hikes had not fully worked through the economy, despite households increasingly feeling the pressure of higher interest-rate payments (MNI RBA WATCH: Pause Priced In Despite Persistent Inflation)

The pause will allow the RBA time to assess the “state of the economy and the outlook, in an environment of considerable uncertainty,” RBA Governor Philip Lowe said in the accompanying statement.

The RBA’s decision and statement weighed on the Australian dollar, which fell 0.35% to the 0.6760/65 region (See: RBA Statement Weighs on AUD/USD, 200-Day MA (0.6750) May Offer Support). Markets had priced in the pause with the overnight index swap rate largely unchanged with a 25bp cut by December still priced in.