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No Interest Rates Relief For Australians

by | Tue, Mar 19 2024

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The Reserve Bank (RBA) has left interest rates at 4.35% for the third meeting in a row in an almost universally expected move reflecting inflation that is cooling, but still too high.

RBA Governor Michelle Bullock said: “We’re making progress in our fight against inflation, but it does remain high. And that is why it is so important that we get inflation back into a target band of 2%-3%. Recent data suggests we are on the right track, but how to best ensure it gets back to target remains uncertain.”

“We want to hold onto as many gains in the labour market as we can. What we need is a greater confidence that inflation will return to the target band in a reasonable timeframe and stay there. The board believes the risks in the outlook are finely balanced and it is too soon to rule anything in or out,” she explained.

Ms. Bullock said the board would need to be “much more confident” that inflation was back into the target band to consider a rate cut. “The central forecast have it not coming back into the band until 2025. If we were to see some acceleration and get some more confidence that we are over-achieving there then possible rate cuts might be something on the agenda. At the moment we are not seeing that and we are in a position where we are cautious and want to wait and see.”

Noticeably, the central bank board removed its explicit reference to more interest rate hikes if the data calls for it in the last post-meeting statement.

The Australian Associated Press reports: “Thirteen interest rate hikes since May 2022 have hammered demand and brought economic growth to a crawl, weakening the inflationary pulse in the process. While inflation remains above the 2%-3% target range, it has been moderating more quickly than expected, cooling to 4.1% in the December quarter.”

Given the convincing progress on inflation, economists broadly agree the next rate move will be down, but a question mark hangs over the timing of those cuts. The post-meeting statement did not mention cuts but highlighted “encouraging signs that inflation is moderating” and said it continued to ease in line with the RBA’s latest forecasts.

Governor Bullock said: “We understand that households are still bearing the brunt of this inflation challenge. We see the weak consumption data and we know there is a big cost-of-living squeeze on households. Unemployment has also picked up a bit. Employment is continuing to grow but these are firmly on the board’s radar and that is why we are being cautious. Wages growth picked up a little further and it is expected to moderate, but it may take some time.”