Official cash rate steady after encouraging CPI data.
At today’s board meeting on monetary policy, the RBA held the official cash rate at 4.35%.
The inflation rate remains persistently high for the RBA as it targets the 2–3% band over the coming years.
However, today’s steady-as-she-goes move was explained by the central bank as necessary because the inflation rate is still ‘some way’ above the midpoint of the target range of 2-3% with it currently at 3.8%.
‘Quarterly underlying CPI inflation has fallen very little over the past year. In year-ended terms, underlying inflation has now been above the midpoint of the target for 11 consecutive quarters,’ said the RBA today.
Today’s pause was largely influenced by last week’s quarterly CPI figures.
Those numbers indicated that although inflation remains an issue, it is not severe enough right now to warrant an increase in the official cash rate.
The RBA would have considered other data, such as 50,200 new jobs being created – most of those full-time roles – at the same time as a 0.1% uptick in the unemployment rate.
But good news could be on the horizon with Nine newspapers forecasting a major Christmas interest rate cut to safeguard the domestic economy from a potential recession in the US.
With these concerns in play, the paper indicates that markets are predicting the RBA will reduce the cash rate to 4.1% by year-end, and with a 40% chance of a massive 0.50% drop.
That would be a merry Christmas for every mortgage holder in Australia.
Australia’s Central Bank may also wait to gauge if recent measures by Canberra – such as the energy rebate and Stage 3 tax cuts – will impact inflation.
So many factors at play right now…
That said, RBA’s series of rate hikes stretching back 27 months could have been too aggressive, argue some critics.
To this point, a recent report by the RBA highlights the delinquency rate on mortgages has been steadily climbing over the past two years.
The RBA also kept its forecasting open today, saying the economic outlook is uncertain and ‘recent data have demonstrated that the process of returning inflation to target has been slow and bumpy.
‘Inflation in underlying terms remains too high, and the latest projections show that it will be some time yet before inflation is sustainably in the target range.’
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