RBA holds rates steady despite inflation uptick
Today the RBA held the official cash rate at 4.10% for a fourth consecutive month despite a lift in the latest inflation figures.
The latest monthly inflation figures saw the annual rate rise from 4.9% to 5.2%, fuelling speculation of a return to rate hikes today.
However, with new Governor Michele Bullock at the helm, Australia’s Central Bank said that keeping rates steady was the right thing to do. For now, anyway.
‘Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will continue to depend upon the data and the evolving assessment of risks,’ said the RBA today.
While headline inflation increased slightly, core inflation, which excludes volatile items like food and energy, decreased in July to 5.5% from 5.8%.
‘Inflation in Australia has passed its peak but is still too high and will remain so for some time yet,” added the RBA.
‘The central forecast is for CPI inflation to continue to decline and to be back within the 2–3 per cent target range in late 2025.’
Most experts anticipate that the Reserve Bank of Australia (RBA) will wait for quarterly inflation data and jobs figures before considering any interest rate hike, delaying any potential rate change until at least next month.
Another significant aspect of the interest rate debate is the ‘mortgage cliff,’ which has already passed its halfway point. Currently, approximately one million Australians are paying higher variable interest rates on their mortgages.
Furthermore, it’s expected that another million or so loans will transition to higher interest rates during the second half of this year and into 2024.
These two factors would have contributed to the decision to maintain the current interest rate today.
Interestingly, outgoing RBA Governor Philip Lowe has predicted that the target range for inflation of 2–3% will become harder to maintain in the years ahead.
He noted last month in a speech that the increased prevalence of supply shocks, de-globalisation, climate change, the energy transition and shifts in demographics will affect such targets.
“While this doesn’t mean that the inflation target can’t be achieved on average,’ he said, ‘it does mean that inflation is likely to be more variable around the 2%–3% target.”
The RBA noted today that high inflation is ‘weighing on people’s real incomes’ before warning that they expect unemployment to go up to 4.5% by late 2024.
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