RBA Holds Steady: Interest Rates Unchanged Despite Political Pressure
The RBA has noted a significant decrease in inflation since its peak in 2022, which is attributed to higher interest rates aligning aggregate demand and supply.
Despite facing immense political pressure to reduce interest rates, the Reserve Bank of Australia (RBA) stood firm.
On Sept. 24, the Board announced its decision to maintain the cash rate target at 4.35 percent and the interest rate on Exchange Settlement balances at 4.25 percent.
The Board’s statement highlighted the substantial reduction in inflation since 2022 due to higher interest rates balancing aggregate demand and supply. However, inflation remains above the 2–3 percent target range’s midpoint.
The Board also mentioned that while headline inflation is expected to temporarily decrease due to cost-of-living relief, sustainable target inflation is not projected until 2026.
Other Nations Lowering Rates
On Sept. 18, the U.S. Federal Reserve announced a half-percentage point interest rate cut, lowering the key lending rate to between 4.75 and 5 percent.
Along with the United States, approximately 10 major central banks, including those of Canada, the UK, the EU, and New Zealand, have been decreasing their official interest rates since last year.
Although specific nations were not mentioned, the Board observed that while some central banks have eased policies, they remain cautious, considering risks from weak labor markets and rising inflation.
The RBA remains committed to maintaining a sufficiently restrictive policy until it is confident in inflation sustainably moving towards the target range.
The Board’s decision-making will continue to be guided by data, evolving risk assessments, global economic developments, domestic demand trends, inflation and labor market projections.
The RBA reaffirmed its determination to bring inflation back to target and will take necessary actions to achieve this goal.
On Sept. 23, Greens economic spokesman Nick McKim urged Treasurer Jim Chalmers to use the government’s reserve powers to enforce a rate cut if the RBA Board does not act.
The Board also highlighted weak economic growth, influenced by earlier declines in real disposable incomes, restrictive financial conditions, and stagnant labor productivity levels.
Despite wage pressure easing, the labor market remains tight, with a 4.2 percent unemployment rate and record-high participation rates and job vacancies.
