No Change in Interest Rates by Reserve Bank of Australia
The board reiterated its commitment to bring inflation back to target and will take necessary actions to achieve this goal.
The Reserve Bank of Australia (RBA) has decided to keep interest rates steady at 4.35 percent, a move widely anticipated by economists.
While the board is firm on returning inflation to target in a reasonable timeframe, it acknowledges that it may still take some time to do so.
Members of the board acknowledged that inflation is slowing down but not as quickly as anticipated and remains elevated.
They also mentioned that the ideal path for interest rates to bring inflation back to target within a reasonable timeframe is uncertain, and they are open to all possibilities.
“The board will rely on data and evolving risk assessments to make decisions. It will closely monitor global economic developments, domestic demand trends, as well as inflation and labor market outlooks,” the RBA stated.
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“The board is determined to bring inflation back to target, and it will take necessary steps to achieve this goal.”
Inflation Facing Challenges
The RBA board pointed out that while inflation has decreased significantly since its peak in 2022, higher interest rates are helping to balance demand and supply.
However, the rate of decline has slowed in recent data updates, with inflation still above the target range of 2 to 3 percent.
“In the year leading up to April, the monthly CPI indicator increased by 3.6 percent in headline terms and by 4.1 percent when excluding volatile items and holiday travel, which is similar to the pace observed in December 2023,” the board highlighted.
“Overall data suggests that there is still excess demand in the economy, along with high domestic cost pressures for both labor and non-labor inputs.”
The board noted improvements in the labor market in the past month but stated that it remains tighter than what is needed for sustained full employment and target inflation.
“Although wage growth seems to have peaked, it remains higher than sustainable levels given the productivity growth trends. Recent data revisions indicate stronger consumption in the past year than previously reported,” said the RBA.
Reactions to Interest Rates Decision
AMP’s head of investment strategy and chief economist, Shane Oliver, mentioned that while the RBA’s decision was expected, its commentary suggests a hawkish stance due to lingering inflation challenges.
City Index APAC Market analyst David Scutt highlighted the RBA’s commitment to bringing inflation back to target, implying a potential move towards hiking rates.
He suggested that the RBA’s tolerance for further inflation surprises may be waning.
Leading up to the decision, all major banks had predicted that the cash rate would remain unchanged.
In a morning research note on June 18, ANZ economists expected both Australia and Europe to keep rates steady.
“While some central banks have started to lower rates, the common theme is the need for further services and core inflation progress before embarking on a sustained easing cycle,” economists remarked.
