RBA holds cash rate at 4.35%, as expected. Says further hike cannot be ruled out.

<ul><li>Prior was 4.35%</li><li>While recent data indicate that inflation is easing, it remains high. The Board expects that it will be
some time yet before inflation is sustainably in the target range</li><li>Inflation continued to ease in the December quarter. Despite this progress, inflation remains high at
4.1 per cent.</li><li>Goods price inflation was lower than the RBA’s November forecasts.</li><li>Services price inflation, however, declined at a more gradual pace in line
with the RBA’s earlier forecasts and remains high.</li><li>While there have been favourable signs on goods price inflation abroad, services price inflation has
remained persistent and the same could occur in Australia.</li><li>Wages
growth has picked up but is not expected to increase much further and remains consistent with the
inflation target</li><li>The outlook is still highly uncertain.</li><li>While there are encouraging signs, the economic outlook is uncertain and the Board remains highly
attentive to inflation risks</li><li>Services
price inflation is expected to decline gradually as demand moderates and growth in labour and non-labour
costs eases.</li><li>The Board needs
to be confident that inflation is moving sustainably towards the target range. </li><li>To date, medium-term
inflation expectations have been consistent with the inflation target and it is important that this
remains the case</li><li>The RBA will hold a press conference one hour after the decision</li></ul><p>AUD/USD trading at 0.6493 just ahead of the release, up 11 pips on the day so far but yesterday's low of 0.6469 was the lowest since November 16.</p><p>Prior to the release, the August 6 meeting was 93% priced for the first rate cut of the cycle with 44 bps priced in by year end.</p><p>I cringed at the line: "The Board needs
to be confident that inflation is moving sustainably towards the target range." It's a plain copy/paste of what the ECB, Fed and others have said. Is it too much to ask that someone drops the groupthink? Or at least pretends to?</p><p>In any case, the Australian dollar has climbed about 10 pips on the report, which held the language 'a further increase in interest rates cannot be ruled out' indicating which isn't a shift to a neutral stance.</p>

This article was written by Adam Button at www.forexlive.com.