The borrowers in Australia have been given some relief as the Reserve Bank has chosen to extend its pause in interest rate hikes while it evaluates the need for further increases to control inflation. The RBA has kept its cash rate at 4.1%, the highest level since 2012. Expectations were split among investors and economists, but the majority predicted another rate increase. RBA Governor Philip Lowe stated that further tightening of monetary policy may be necessary depending on data and risk assessments. However, economist David Bassanese suggests that unless there is an unexpected increase in inflation, this could be the last rate hike in this cycle.
The central bank began raising interest rates from a record low of 0.1% in May 2022. Since then, there has been a significant 400 basis point increase in monetary policy, marking the most substantial tightening in over three decades. Despite mixed economic signals, with retail spending and inflation figures weaker than expected, employment rates remain strong with little wage growth yet. The RBA’s decision to keep the cash rate unchanged allows for a better understanding of wage increases. The Australian dollar depreciated against the US dollar following the announcement, while stocks experienced gains.
Australia’s official interest rate remains lower than that of similar nations such as the US, Canada, and New Zealand. The decision to maintain the cash rate offers the RBA more time to assess wage increases. The Australian dollar’s attraction may decrease due to lower interest rates, while reduced debt repayments benefit companies. The central bank aims to achieve the target range for annual inflation by mid-2025.
Lowe’s modification of the phrasing regarding inflation forecasts was noted but not significantly interpreted. Economists anticipate Friday’s statement to maintain the previous forecast at 3% for June 2025. The economy’s growth rate in 2023 was not estimated, but the possibility of a recession remains low. Lowe acknowledges below-trend growth in the Australian economy, with weak household consumption and dwelling investment. GDP growth of around 1.75% in 2024 and just above 2% in the following year is projected. The RBA maintains its previous prediction of a rise in the unemployment rate by approximately one percentage point by the end of 2024.
Overall, the RBA’s decision to hold rates steady reflects a cautious approach to managing inflation and economic growth. The bank will continue to monitor data and risks before deciding on future policy actions.
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