The Reserve Bank of Australia left its benchmark interest rate^[1] unchanged^[2] at 4.1% today, stressing the uncertainty in the economic outlook.

As the Reserve Bank Governor Michele Bullock told a media conference, “since February there has been a lot more uncertainty introduced in the international context”.

The on-hold decision was widely expected^[3] and Bullock described it as a “consensus decision” by the board.

The decision to hold was not because the election campaign is underway. It was because there has not been enough new economic data to change materially its view on inflation. The governor said the board had never mentioned the election in its discussions.

In a statement, the central bank said:

Recent announcements from the United States on tariffs are having an impact on confidence globally and this would likely be amplified if the scope of tariffs widens.

As the Reserve Bank Governor put it, “we’re paid to worry” and they are discussing with peer central banks the response to global uncertainties.

Decline in inflation is welcome

The volatile^[4] monthly inflation series fell marginally, from 2.5% to 2.4%, in February.

The more trustworthy quarterly consumer price index (CPI)^[5] will come out on April 30 and will be an important factor in the Reserve Bank’s decision at its next meeting, on May 20.

The CPI report is likely to show the “trimmed mean” underlying inflation^[6] returning to the 2–3% target band for the first time since 2021. Headline inflation could be in the lower half of the band.

The unemployment rate^[7] has been steady at 4.1%. This is below what the Reserve Bank had regarded as the level consistent with steady inflation. But it has not been associated with an acceleration in wages^[8]. Indeed, wages have slowed to 3.2% growth, less than the Reserve Bank was forecasting^[9] for 2025.

This could all give the Reserve Bank the confidence to make another cut to the cash rate. Financial markets are predicting a cut in May.

The board itself said the current level of rates “remains restrictive”. So they will cut rates further once inflation is sustainably around the middle of the target band.

The (lack of) impact of the budget

The main impact of last week’s federal budget will be to delay the bounceback in electricity prices, after the end of the current rebates, for another six months. If there is a change in government, there will be a temporary fall in petrol prices for a year.

Read more: We calculated how much Dutton's excise cut would save you on fuel – and few will save as much as promised^[10]

But both of these have only temporary effects on the “headline” inflation rate. The Reserve Bank is more concerned about sustained movements in underlying inflation.

Labor’s proposed income tax cuts, which will be cancelled if the Coalition wins power, are only “modest” (in the treasurer’s own words^[11]) and do not come into effect until July 2026. They are also unlikely to have a material impact on the Reserve Bank’s inflation forecasts.

The governor suggested as much, commenting that the forecasts following the budget would be similar to those made in February. She described increasing government spending as “filling a gap” in relatively weak private demand.

The fallout from tariffs

We will not know the extent of the new tariffs^[12] being announced by United States President Donald Trump until later in the week. And even then he may change them within days – or even on the same day.

The US tariffs will push up prices there. But if they trigger a trade war, the global economy will weaken and this may lead to lower prices globally. The governor pointed out that trade diversion prompted by tariffs could lower the price of some imports.

Bullock said the central bank was assessing the potential impact of tariffs on Australia’s trading partners including China. If Chinese authorities boosted support for their economy, then the economic impact on Australia might be “muted”.

The Reserve Bank’s 0.25% interest rate cut in February to 4.1% was the first change in the cash rate since November 2023 and marked the first small reversal of 13 rate increases that began in the closing days of the Morrison government.

Read more: The Reserve Bank has cut rates for the first time in four years. But it is cautious about future cuts^[13]

The Reserve Bank and the election

The heightened attention placed on the Reserve Bank in an election campaign is not that unusual^[14]. With Australian parliamentary terms limited to three years, but with no fixed duration, we are often approaching a possible election.

While cutting interest rates will suit one side of politics, not cutting benefits the other. The impartial approach taken by the Reserve Bank is to make the same decision as they would if no election were looming.

The new board

This is the first meeting of the new monetary policy board^[15], which is now separate from the central bank’s governance board.

This specialisation was a recommendation of the 2023 Reserve Bank review commissioned by the treasurer. But seven of the nine member remain from the previous board. The two new members^[16], including one of the authors of the review, are not expected to hold markedly different views to the continuing members.

References

1. ^{^} benchmark interest rate (www.rba.gov.au)
2. ^{^} unchanged (www.rba.gov.au)
3. ^{^} expected (library.westpaciq.com.au)
4. ^{^} volatile (theconversation.com)
5. ^{^} quarterly consumer price index (CPI) (www.abs.gov.au)
6. ^{^} underlying inflation (www.rba.gov.au)
7. ^{^} unemployment rate (www.abs.gov.au)
8. ^{^} wages (www.abs.gov.au)
9. ^{^} forecasting (www.rba.gov.au)
10. ^{^} We calculated how much Dutton's excise cut would save you on fuel – and few will save as much as promised (theconversation.com)
11. ^{^} own words (ministers.treasury.gov.au)
12. ^{^} new tariffs (theconversation.com)
13. ^{^} The Reserve Bank has cut rates for the first time in four years. But it is cautious about future cuts (theconversation.com)
14. ^{^} not that unusual (www.afr.com)
15. ^{^} new monetary policy board (theconversation.com)
16. ^{^} two new members (ministers.treasury.gov.au)