The nine-member Board voted to leave the country’s official interest rate unchanged at its 12-year peak of 4.35% until August. 

The decision came as no surprise as recent data flows have been broadly in line with RBA’s forecasts. 

“To date, medium-term inflation expectations have been consistent with the inflation target and it is important that this remains the case,” the RBA Board post-meeting statement reads. 

Despite extending the cash rate pause for the fifth consecutive time, vigilance remains the order of the day as the RBA maintains its “not ruling anything in or out” mantra until it becomes more confident of returning inflation to target. 

“Inflation is easing but has been doing so more slowly than previously expected and it remains high,” the Board said. 

Over the year to April, the monthly consumer price index (CPI) rose 3.6% in headline terms, well above the RBA’s ideal range of 2-3%. 

Excluding volatile items, prices rose by 4.1%, 30 basis points over the central bank’s expected pace of 3.8% by June. 

“The Board expects that it will be some time yet before inflation is sustainably in the target range.”

RBA considered hiking the cash rate

In her face time with the press RBA Governor Michele Bullock revealed that the Board "discussed the case for increasing the cash rate".

"In the end, it decided that its current strategy of staying the course and trying to bring inflation back down was the right way to go," Gov Bullock said. 

Since sitting at the helm of Australia’s central bank in September 2023, Gov Bullock has maintained that inflation remains a key challenge and that the restrictive policy aims to bring it back under control. 

After the March quarter CPI set the alarm bells ringing, the recent run of data has provided the central bank with more confidence that its monetary policy is working as intended.

The first quarter GDP growth slowing to just 1.1% was in line with the central bank’s expectations which is estimated to be around 1.3% year-on-year. 

Recent jobless rate of 4% in May is likewise tracking towards the RBA’s target. 

However, the RBA is still on high alert. 

“While recent data have been mixed, they have reinforced the need to remain vigilant to upside risks to inflation,” the rate-setting committee said.

“Conditions in the labour market eased further over the past month but remain tighter than is consistent with sustained full employment and inflation at target.” 

The Board also noted that while wages growth appears to have peaked, it is “still above the level that can be sustained given trend productivity growth.”

Rate cut not considered as the outlook remains uncertain

While the expectation is tipping towards a rate cut – possibly in November this year, though ANZ has pushed back its forecast by three months to February – Gov Bullock said the case for a rate cut was not considered at the June meeting. 

However, the RBA chief assuaged mortgage holders and consumers hurting by the high cash rate, confirming that the case for a rate rise is not increasing. 

“What I would say is that there’s been a few things that have made the Board alert to the upside risks,” she said.

Echoing its previous post-meeting statements, the Board on Tuesday said the outlook remains uncertain, with the persistence of services inflation a key uncertainty. 

“The recent data have demonstrated that the process of returning inflation to target is unlikely to be smooth.”

The revised forecasts published in its May SoMP were for inflation to return to the target band by the second half of 2025 and to the midpoint in 2026. 

“Since then, there have been indications that momentum in economic activity is weak, including slow growth in GDP, a rise in the unemployment rate, and slower-than-expected wages growth.”

“At the same time, the revisions to consumption and the saving rate and the persistence of inflation suggest that risks to the upside remain.”

In the same breath, the Board acknowledged the potential impact of recent budget measures on demand, while saying that federal and state energy rebates “will temporarily reduce headline inflation”.

“More broadly, there are uncertainties regarding the lags in the effect of monetary policy and how firms’ pricing decisions and wages will respond to the slower growth in the economy at a time of excess demand, and while conditions in the labour market remain tight.”

Ultimately, the RBA maintains a hawkish tone, declaring its “resolute determination” to do “what is necessary” to return inflation to target. 

“The Board will rely upon the data and the evolving assessment of risks. In doing so, it will continue to pay close attention to developments in the global economy, trends in domestic demand, and the outlook for inflation and the labour market,” the statement reads. 

Photo courtesy of the RBA