Reserve Bank keeps interest rates on hold for third consecutive month

The Reserve Bank of Australia has kept interest rates on hold for a third consecutive month as it seeks to gain more clarity on the nation’s economic outlook.

In what was outgoing Governor Dr Philip’s Lowe last time chairing the board, the RBA kept the cash rate at 4.10 per cent.

This comes after 12 interest rate rises, totalling 4 per cent, since May last year.

In his monetary policy statement, Dr Lowe said higher interest rates were working to establish equilibrium between supply and demand in the economy and would continue to do so.

“In light of this and the uncertainty surrounding the economic outlook, the Board again decided to hold interest rates steady this month,” he said.

“This will provide further time to assess the impact of the increase in interest rates to date and the economic outlook.”

Dr Lowe said inflation had passed its peak in Australia and the monthly CPI indicator for July had declined but, overall, inflation was still too high.

“While goods price inflation has eased, the prices of many services are rising briskly,” he said.

“Rent inflation is also elevated. 

“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.”

Dr Lowe said the Australian economy was experiencing a period of “below-trend growth” and this would continue for some time.

“High inflation is weighing on people’s real incomes and household consumption growth is weak, as is dwelling investment,” he said.

“Notwithstanding this, conditions in the labour market remain tight, although they have eased a little. 

“Given that the economy and employment are forecast to grow below trend, the unemployment rate is expected to rise gradually to around 4½ per cent late next year.

“Wages growth has picked up over the past year but is still consistent with the inflation target, provided that productivity growth picks up.”

Dr Lowe said there were still significant uncertainties about the economic outlook for Australia and services price inflation that has been persistent overseas could occur here. 

He said there were also uncertainties regarding the lags in the effect of monetary policy and how firms’ pricing decisions and wages respond to the slower growth in the economy at a time when the labour market remains tight. 

“The outlook for household consumption also remains uncertain, with many households experiencing a painful squeeze on their finances, while some are benefiting from rising housing prices, substantial savings buffers and higher interest income,” he said.

“And globally, there is increased uncertainty around the outlook for the Chinese economy due to ongoing stresses in the property market.”

Dr Lowe said some further tightening of monetary policy may be needed to ensure inflation drops to its target range in a reasonable timeframe, but that would depend upon data and “the evolving assessment of risks”.

More to come….

Source link

About The Author

Scroll to Top