Reserve Bank of Australia holds cash rate steady

The higher interest rates have been effective in establishing a more balanced supply and demand dynamic within the economy. Recognising the prevailing economic uncertainties, the board chose to maintain interest rates at their current level for the time being. This decision allows the RBA to evaluate the impact of previous interest rate hikes and assess the overall economic outlook, Philip Lowe, governor, RBA, said in a statement.

While inflation in Australia has peaked, the May consumer price index (CPI) indicated a further decline. However, the RBA acknowledged that inflation remains persistently high and is expected to remain so for the foreseeable future. The detrimental effects of elevated inflation, such as eroding savings, straining household budgets, hindering business planning and investment, and exacerbating income inequality, were highlighted. The board's primary focus remains on returning inflation to the target range within a reasonable timeframe.

Australia's economic growth has decelerated, and the labour market has experienced some easing, although it remains tight. While reports suggest a reduction in labour shortages, job vacancies and advertisements continue to remain at elevated levels. Notably, labour force participation is at a record high, and the unemployment rate remains close to a 50-year low. Responding to the tight labour market and high inflation, wages growth has increased. However, the board emphasised the need for productivity growth to support sustained wages growth that aligns with the inflation target.

Although the board maintains its expectation of economic growth as inflation returns to the target range, it acknowledges the challenges associated with achieving this balance. Household consumption remains a significant source of uncertainty due to the combined impact of higher interest rates and cost-of-living pressures, leading to a notable slowdown in spending. Moreover, uncertainties in the global economy, which is projected to grow below average in the coming years, add to the economic landscape's complexity, the statement added.

The RBA indicated that future monetary policy adjustments may be necessary to ensure inflation returns to the target range within a reasonable timeframe.

Fibre2Fashion News Desk (KD)