Commerzbank’s Volkmar Baur notes that the Reserve Bank of Australia (RBA) has raised rates for the third time this year to 4.35%, prioritizing inflation expectations and second‑round risks over softer March Consumer Price Index (CPI). The RBA now sees inflation near 4.8% mid‑year and above target all year. However, weaker growth and stagflationary pressures from higher fossil fuel prices are seen as negative for the Australian Dollar (AUD).

Stagflation risks overshadow tighter RBA stance

"The Reserve Bank of Australia decided to raise its key interest rate for the third time this year to 4.35%."

"The RBA has thus remained true to its statements from the last meeting and views the risks of potential second-round effects as greater than the (currently still) muted response of inflation to rising fossil fuel prices."

"In its forecasts, the RBA lowered its growth projections for this year and next, and now expects inflation to rise to 4.8% by mid-year (it was already at 4.6% in March)."

"The RBA therefore assumes that inflation will remain well above its 2–3% target range for the entire year."

"And this is not an environment in which the AUD is likely to benefit."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)