Cash Rate Held Steady Amid Inflation Concerns

The Reserve Bank of Australia (RBA) kept the cash rate steady at 4.35%, noting a decline in inflation from its peak in 2022. However, underlying inflation remains above the 2 – 3% target range, requiring careful monitoring. The Board reaffirmed its dedication to bringing inflation back within the target band.

Economic Growth Slows, Consumption Weakens

Australia’s economy expanded by just 0.8% over the past year, representing the slowest growth outside the pandemic since the early 1990s. Household spending, particularly on discretionary items, has been subdued due to declines in real disposable income and the continued impact of tight financial conditions.

Global Trends in Monetary Easing

Numerous advanced economies have started cutting interest rates as inflationary pressures ease. Despite this, monetary settings in Australia remain less restrictive than in other countries. Central banks in Canada and New Zealand, for instance, have enacted substantial rate cuts to counter economic slowdowns and rising unemployment.

Housing Market and Labour Dynamics

While house prices have shown resilience, labour market conditions remain tight. The Board considered uncertainties surrounding wages and pricing behaviours, especially as productivity growth continues to lag and the economy adapts to restrictive monetary policies.

Balancing Risks to Inflation and Growth

The RBA noted that aggregate demand continues to outpace supply capacity, though this imbalance is diminishing. Inflation risks remain, influenced by uncertain reactions to slower growth and ongoing geopolitical challenges.

Commitment to Policy Goals

The RBA reiterated that achieving its inflation target is its highest priority, consistent with its responsibility to maintain price stability and full employment. The Board emphasised its preparedness to adjust monetary policy as necessary to ensure sustainable economic growth.