Interest rates

RBA leaves interest rates unchanged; The war in Ukraine, a new source of uncertainty

By James Glynn

SYDNEY – Official interest rates in Australia held steady at record lows on Tuesday after the country’s central bank reiterated that it would be patient, awaiting confirmation that inflation has returned sustainably to its desired target range of 2% to 3% before tightening policy parameters.

The Reserve Bank of Australia kept 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… Prices for many commodities have risen further due to the war in Ukraine. Bond yields have risen over the past month and expectations for future key interest rates have risen,” RBA Governor Philip Lowe said in a statement.

The RBA’s warning comes as tough economic sanctions from world governments aimed at Russia in retaliation for its war in Ukraine are hitting home.

Meanwhile, Russian President Vladimir Putin has also put his country’s nuclear arsenal on high alert in recent days, sharply increasing the risks around the conflict.

Rising geopolitical tensions in Europe further boosted energy prices, fueling fears of rising global inflation.

“Inflation in some parts of the world has risen sharply due to sharp increases in energy prices and disruptions to supply chains at a time of high demand,” Mr Lowe said.

With financial markets betting that the RBA will make its first interest rate hike by June, Mr Lowe has only gone so far as to say there is a “plausible” scenario that would see rates rise interest increase in 2022.

By staying on the sidelines in March, the RBA is once again choosing to lag its global peers, many of whom have started raising interest rates or signaled impending policy tightening.

The US Federal Reserve is expected to start raising interest rates this month.

Australian GDP growth data for the last three months of 2021 will be released on Wednesday as it is expected to show the economy rebounding strongly from pandemic-related lockdowns in the third quarter.

While the Omicron variant of the Covid-19 virus slowed the economy earlier this year, recent data showed the impact was far less than Delta, as lockdowns were not a feature of government responses in the States.

Write to James Glynn at james.glynn@wsj.com