RBA Keeps the Cash Rate at 4.35% and Recognizes a Softer Inflation Trend

Bob Mason

On Tuesday, the RBA held the cash rate unchanged at 4.35% and listed a range of uncertainties and optimism about inflation to close the door on rate hikes.


In this article:


  • RBA keeps the cash rate at 4.35%, as expected.
  • The Rate Statement sent a dovish message, with the RBA recognizing softer inflation and a likely loosening in labor market conditions.
  • European and US Services and the US JOLTs Job Openings are up next.

The RBA Interest Rate Decision

On Tuesday, December 5, 2023, the RBA left the cash rate unchanged at 4.35%. Economists forecast the RBA to leave the cash rate at 4.35%. Recent inflation and retail sales figures supported bets on the RBA ending its rate hike cycle. The policy decision redirected the market focus to the RBA Rate Statement.

RBA Rate Statement Signals a Policy Pivot from the Rate Hike Cycle

The RBA Rate Statement garnered investor attention. Salient points from the Rate Statement included,

  • Limited economic data since the November meeting in line with expectations.
  • The Monthly CPI Indicator suggested inflation continues to moderate.
  • RBA Board members expect wage growth to not increase much further and for labor market conditions to loosen.
  • Until now, medium-term inflation expectations have been consistent with the inflation target.
  • Service price inflation remains persistent and could affect inflation in Australia.
  • Uncertainty about the Chinese economic outlook and overseas conflicts could impact growth.
  • Domestically, the outlook for household consumption remains uncertain.
  • The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome.

Aussie Dollar Reaction to the Rate Statement

Before the RBA interest rate decision and Rate Statement, the AUD/USD rose to a high of $0.66217 before falling to a low of $0.65961.

However, in response to the decision and Rate Statement, the Aussie dollar rose to a high of $0.66062 before tumbling to a low of $0.65713.

This morning, the Australian dollar was down 0.66% to $0.65758.

AUD/USD sinks on the RBA Rate Statement.
051223 AUDUSD 3 Minute Chart

European PMIs in the Spotlight

Later today, service PMIs from Europe will garner investor interest. An upward revision to the Eurozone services PMI could ease fears of a prolonged economic recession. Better-than-expected numbers may also support ECB plans to keep interest rates higher for longer. An aggressive rate path could impact the economy and demand.

Significant: US ISM Non-Manufacturing PMI and JOLTs Job Openings

However, the ISM Non-Manufacturing PMI and US JOLTs will likely have more impact on the global markets.

An unexpected fall in the ISM Non-Manufacturing PMI and a larger-than-forecasted decline in job openings would fuel bets on a Q1 2024 Fed rate cut. Investors must consider sub-components of the reports.

Contrasting results could ease bets on a Fed rate cut.

Increases in ISM prices and ISM employment could signal a pickup in demand-driven inflation. Service providers could pass on input prices (incl. higher wages) to consumers. Also, a higher JOLTs quit rate would signal confidence in the US economy, supporting wage growth, consumption, and demand-driven inflation.


About the Author

Bob Masonauthor

With over 20 years of experience in the finance industry, Bob has been managing regional teams across Europe and Asia and focusing on analytics across both corporate and financial institutions. Currently he is covering developments relating to the financial markets, including currencies, commodities, alternative asset classes, and global equities.

Did you find this article useful?