The Reserve Bank of Australia (RBA) has decided to maintain the cash rate at 4.35% and the interest rate on Exchange Settlement balances at 4.25%, citing ongoing high inflation and slower-than-expected economic adjustments.
Despite recent data showing some moderation, inflation remains stubbornly high, influenced by persistent services inflation and strong domestic cost pressures.
The RBA expressed concerns over excess demand in the economy, particularly from labor and non-labor costs, indicating that wage growth, although peaking, remains unsustainably high against productivity trends.
This economic scenario has kept household consumption growth weak, impacted by earlier interest rate hikes and inflation’s erosion of real disposable income.
Looking forward, the RBA forecasts that inflation will return to its target range of 2-3% only by the second half of 2025, with a midpoint reach expected in 2026. Challenges such as services inflation, labor market tightness, and the effects of monetary policy contribute to a complex and uncertain economic outlook.
The RBA emphasises that its priority remains to steer inflation back to target while keeping an eye on global economic developments and domestic demand trends.
In their statement, RBA officials reaffirmed their commitment to monitoring economic indicators closely and adjusting policies as needed to ensure inflation targets are met, reflecting ongoing vigilance against potential risks.
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