HomeFinanceRBA stands pat on rates to assess economic outlook

RBA stands pat on rates to assess economic outlook

SYDNEY–The Reserve Bank of Australia left official interest rates on hold Tuesday saying that the decision gives it time to further assess the mixed economic outlook.

The official cash rate remained at 4.10%, with economists split ahead of the policy meeting on whether the RBA would tighten further or remain on the sidelines.

“Interest rates have been increased by 4 percentage points since May last year. The higher interest rates are working to establish a more sustainable balance between supply and demand in the economy and will continue to do so,” RBA Governor Philip Lowe said in a statement.

“In light of this and the uncertainty surrounding the economic outlook, the board decided to hold interest rates steady this month. This will provide some time to assess the impact of the increase in interest rates to date and the economic outlook,” he added.

The decision will focus attention on the release of second-quarter inflation data at the end of July, which may yet trigger another rise in interest rates in August.

The decision to pause comes as the RBA’s global peers have either tightened policy settings further recently, or like the U.S. Federal Reserve, warned that even stricter settings are likely to be needed.

Inflation in Australia has eased from a peak annual rate of close to 8.0% at the end of 2022 but the RBA remains nervous that a recent rise in the country’s minimum wage might fuel demands for big wage increases across the economy.

“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 how the economy and inflation evolve,” Lowe said.

Australia’s job market remains tight with unemployment continuing to hover around its lowest levels in half a century against a backdrop of strong jobs growth, with job vacancies continuing to exceed the number of people seeking work.

Persistent pressure around higher prices for services globally also has the RBA on alert, with economists seeing little reason why the price trends internationally won’t eventually impact the economy in the same manner.

Still, the economy is slowing with some forecasters estimating the probability of a recession in coming quarters at around 50%.

Lowe said he doesn’t expect a recession and still expects the economy to continue to grow as inflation steadily returns to the central bank’s 2% to 3% target band by mid-2025.

The RBA is more alert to rising pain for those repaying mortgages,.

“The combination of higher interest rates and cost-of-living pressures is leading to a substantial slowing in household spending,” Lowe said.

“While housing prices are rising again and some households have substantial savings buffers, others are experiencing a painful squeeze on their finances,” he added.

Write to James Glynn at [email protected]

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