October marks the fourth consecutive month of the RBA holding the cash rate steady at 4.10%.
The RBA’s decision to hold was in line with the forecast from the economists from the big banks.
Here are the highlights of RBA Governor Michele Bullock’s latest monetary policy decision statement:
On the reasons supporting the hold:
- The RBA Board believes that the higher interest rates are working to establish a more sustainable balance between supply and demand in the economy and will continue to do so.
- The hold will provide further time to assess the impact of previous rate hikes on the economy.
On inflation and the economy:
- Inflation remains high but has already passed its peak.
- Growth in the Australian economy was a little stronger than expected over the first half of the year, but the economy is still experiencing a period of below-trend growth. This is expected to continue for a while.
- Given that the economy and employment are forecast to grow below trend, the unemployment rate is expected to rise gradually to around 4.5 % late next year.
- Wages growth has picked up over the past year but is still consistent with the inflation target, provided that productivity growth picks up.
- Inflation is coming down, the labour market remains strong and the economy is operating at a high level of capacity utilisation, although growth has slowed.
On the RBA Board’s priorities and outlook:
- The RBA maintains its top priority of returning inflation to target within a reasonable timeframe.
- Uncertainties remain, including the services price inflation, and the lags in the impact of the monetary policy.
- The outlook for household consumption also remains uncertain, with many households experiencing a painful squeeze on their finances, while some are benefiting from rising housing prices, substantial savings buffers, and higher interest income.
- Some further tightening might be needed to ensure that targets are met on time.
- The RBA Board will keep an eye on the global economy, trends in household spending, and the outlook for inflation and the labour market.
CreditorWatch's Anneke Thompson said the ongoing subdued retail trade figures and consumer confidence data provide the RBA board an indication that their actions to curb demand in the economy have been highly effective.
“While some items in the CPI ‘basket’ continue to record price rises, these rises are by and large not related to high consumer demand, and therefore not enough to convince the RBA to move again to cool demand further,” she said.
Ms Thompson said while the monthly indicator's higher reading was not exactly good news for the RBA, there is recognition that the overall reading could have been lower if not for the volatile items.
“The figure is heavily impacted by the higher cost of fuel this month. Excluding volatile items like fuel, holiday travel and fruit & vegetable items, monthly CPI increased 5.5%, down from 5.8% the month prior,” she said.
Ms Thompson also said while the labour market remains very tight, the fall in quarterly job vacancy data would likely see unemployment increase over the next few months.
For PropTrack senior economist Eleanor Creagh, there are enough factors to ease the pressure on the RBA to continue lifting rates.
“The full impact of monetary tightening to date is yet to be felt and we’re likely to continue to see inflation moving lower as a result,” she said.
“Unless there is a shift in the disinflationary outlook, it’s likely the peak in the cash rate is already in for this monetary policy tightening cycle.”
Photo by Suriyapong on Canva.