Behind the RBA board’s interest rate decision

RESERVE BANK KEEPS RATES ON HOLD

The Reserve Bank of Australia board has decided to keep the cash rate on hold at 4.1 per cent at its August monthly meeting.

WHY?

* Four percentage points of rate rises since mid-2022 are working to balance supply and demand in the economy.

* Inflation is declining, but is still too high at six per cent. However, it is forecast to decline to 3.25 per cent by the end of the year and be back within the RBA’s two-to-three per cent target range in late 2025.

* Labour market conditions remain very tight but have eased a little.

* The Australian economy is experiencing a period of below-trend growth and this is expected to continue for a while.

WHAT’S NEXT FOR RATES?

* RBA governor Phil Lowe has not ruled out a future cash rate rise: “Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon the data and the evolving assessment of risks.”

* Oxford Economics Australia says: “We now expect a protracted pause in rate movements from the RBA that will extend deep into 2024.”

WHAT WAS THE RESPONSE?

“We welcome this pause in the interest rate and hope it is an indicator of the RBA taking a different approach moving forward.” – ACTU secretary Sally McManus.

“We are making progress in this fight against inflation.” – Treasurer Jim Chalmers.

“The impact of the previous rate increases is clearly starting to come through, with household consumption and dwelling investment weakening. The Reserve Bank is right to wait and see what the full impact of the earlier rate increases will be.” – Australian Chamber of Commerce and Industry chief Andrew McKellar.

 

Paul Osborne
(Australian Associated Press)

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