SYDNEY — Official interest rates in Australia were held steady at record lows on Tuesday after the country’s central bank reiterated that it will be patient, awaiting confirmation that inflation has returned sustainably to its desired 2%-3% target band before tightening policy settings.
The Reserve Bank of Australia held its cash rate at a record low of 0.10% at its policy meeting, adding that the war in Ukraine has further clouded the global economic outlook.
“The war in Ukraine is a major new source of uncertainty…The prices of many commodities have increased further due to the war in Ukraine. Bond yields have risen over the past month and expectations of future policy interest rates have increased,” RBA Gov. Philip Lowe said in a statement.
The warning from the RBA comes as severe economic sanctions by world governments directed at Russia in retaliation for its war in Ukraine are hitting home.
Meanwhile, Russian President Vladimir Putin also put his country’s nuclear arsenal on high alert in recent days, sharply escalating risks around the conflict.
Rising geopolitical tensions in Europe have bolstered energy prices further, fueling fears around rising global inflation.
“Inflation in parts of the world has increased sharply due to large increases in energy prices and disruptions to supply chains at a time of strong demand,” Mr. Lowe said.
While financial markets are betting the RBA will deliver its first increase in interest rates by June, Mr. Lowe has only come so far to say that there is a “plausible” scenario that would see interest rise in 2022.
By remaining on the sidelines in March, the RBA is again choosing to lag behind its global peers, many of which have started to raise interest rates, or pointed to imminent tightening of policy.
The U.S. Federal Reserve is expected to start raising interest rates this month.
Australian GDP growth data for the final three months of 2021 will be published on Wednesday amid expectations that they will show the economy bounced strongly out of pandemic-related lockdowns in the third quarter.
While the omicron variant of the COVID-19 virus slowed the economy at the start of this year, recent data has shown the impact was far less than Delta, as lockdowns weren’t a feature of state government responses.