Rates on hold but RBA ‘not ruling anything in or out’

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

The board came to its decision on Tuesday after two days of reviewing the state of the economy and progress on inflation.

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 and instead said it was “not ruling anything in or out”.

“The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the board is not ruling anything in or out,” the post meeting statement read.

“The board will continue to pay close attention to developments in the global economy, trends in domestic demand and the outlook for inflation and the labour market.

“The board remains resolute in its determination to return inflation to target.”

Thirteen interest rate hikes since May 2022 have hammered demand and brought economic growth to a crawl, weakening the inflationary pulse in the process.

And while inflation remains above the two to three per cent target range, it has been moderating more quickly than expected, cooling to 4.1 per cent 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.

But the board said the economic outlook remained uncertain.

Growth has slowed and household consumption growth was “particularly weak,” although recovering real incomes were “expected to support growth in consumption later in the year”.

“Meanwhile, growth in unit labour costs remains very high,” it said.

“It has begun to moderate slightly as measured productivity growth has picked up in the past two quarters but whether this trend will be sustained is uncertain.”


Poppy Johnston
(Australian Associated Press)


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