Rates stable but inflation remains ‘sticky’
The RBA’s official cash rate remained steady at 4.35% today, though analysts are divided on the direction rates may take over the coming months.
The RBA said today that while inflation is easing, it has been doing so more slowly than previously expected and it remains ‘high’.
‘The Board expects that it will be some time yet before inflation is sustainably in the target range,’ said the Central Bank.
So, with rates the highest we’ve seen in over a decade, no rate cuts just yet. Even though we’re seeing signs of a global rate decline.
Earlier this month, policymakers at the European Central Bank and Bank of Canada became the first central banks of major economies to cut interest rates.
Australia isn’t at that point just yet with the CPI remaining a ‘sticky’ problem at 3.6% (though GDP growth is flat and unemployment numbers are dropping).
The Central Bank added today that the ‘economic outlook remains uncertain and recent data have demonstrated that the process of returning inflation to target is unlikely to be smooth.’
It’s worth also noting that today’s monetary policy meeting was the first since last month’s big-spending Federal Budget. Tellingly, in the budget, the government forecast the cash rate to gradually ease from around the middle of 2025 ‘to reach 3.6 per cent by the middle of 2026.’
Analysts have noted the Treasurer’s budget – with its broad cost-of-living relief – is at odds with the RBA monetary policy.
This is why some market analysts noted that the budget’s frontloaded spending of around $24 billion over the next two years could hamper the RBA’s efforts to bring inflation down to the 2–3% target band.
So much for a November rate cut predicted earlier this year by all four major banks…
On the other side of this fence some analysts, like respected economist Warren Hogan, believe there’ll be an August rate rise as crucial economic data becomes available. Others point to worries over a potential recession as justification for a rate cut, while the RBA kept its options open today.
‘The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the Board is not ruling anything in or out.’
Encouragingly for some, however, national home values remain robust with national prices up 0.3% to reach a new record in May.
If you would like to review your home loan arrangements, contact Mortgage Broker Group.
We can help with tips on how to uncover lower rates, boost your savings, consolidate other debts and take the pressure off increases in household prices.
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