Australian borrowers will have another month of reprieve as the Reserve Bank of Australia (RBA) kept the official cash rate on hold at 4.35 percent.
After the first 2024 board meeting concluded on Feb. 6, the RBA announced that the cash rate would remain unchanged for the second month.
The announcement was consistent with the forecasts of many economists and financial experts.
The central bank cited the recent drop in the official inflation rate as the main reason for its decision.
According to the Australian Bureau of Statistics, the annual consumer price index (CPI) grew by 4.1 percent in the December 2023 quarter, down from 5.4 percent in the September quarter.
The figure marks the fourth consecutive drop in the inflation rate, and is well below the peak of 7.8 percent in the December 2022 quarter.
Goods inflation decreased from 4.9 percent to 3.8 percent, while services inflation fell from 5.8 percent to 4.6 percent during the period.
While the central bank acknowledged the downward movement in price growth of goods and services, it said inflation was still high.
“Goods price inflation was lower than the RBA’s November forecasts. It has continued to ease, reflecting the resolution of earlier global supply chain disruptions and a moderation in domestic demand for goods,” the RBA said in a statement.
“Services price inflation, however, declined at a more gradual pace in line with the RBA’s earlier forecasts and remains high.”
The bank’s overall assessment was that demand still remained above the economy’s capacity to supply goods and services, despite Australia’s economy moving toward a better balance, and likely causing inflation to stay elevated for a while.
Under the current economic conditions, the RBA forecasted that inflation would drop to around 3 percent by mid-2025 before falling further to 2.5 percent by 2026.
Pointing to the high level of uncertainty in the domestic and global economic outlook (including the declining Chinese economy and the war in Ukraine), the central bank said its highest priority was to return inflation to the 2 to 3 percent target band within the forecasted time frame.
As such, the RBA will leave open the possibility of another interest rate hike in the coming period.
“The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks, and a further increase in interest rates cannot be ruled out,” the RBA said.
“The Board 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.”
