Reserve Bank Keeps Interest Rates on Hold

People shop for fresh produce at the Queen Victoria Market in Melbourne, Australia, on July 4, 2023.William West/AFP via Getty Images

Interest rates in Australia will remain on hold after the Reserve Bank of Australia (RBA) opted to keep the rates steady.

The Board kept Australia’s official cash rate at 4.1 percent at a meeting today.

Despite the move, the RBA said inflation in Australia is still too high. However, it has past its peak.

“Inflation in Australia has passed its peak but is still too high and will remain so for some time yet. Timely indicators on inflation suggest that goods price inflation has eased further, but the prices of many services are continuing to rise briskly and fuel prices have risen noticeably of late,” RBA Governor Michele Bullock said.

“Rent inflation also remains elevated. The central forecast is for CPI inflation to continue to decline and to be back within the 2–3 per cent target range in late 2025.”

Today’s meeting is the first with Ms. Bullock at the helm as the Reserve Bank governor.

Ms. Bullock left the door open that further interest rates could be on the horizon in the future.

The RBA governor noted controlling inflation is still the board’s priority at this time.

“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will continue to depend upon the data and the evolving assessment of risks,” Ms. Bullock said.

“The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome.”

The market was widely predicting that the Reserve Bank would keep rates on hold today.

In a research note, ANZ economists said to “expect another hawkish pause from the RBA at 2.30 p.m. today.”

The benchmark S&P/ASX 200 Index comprising Australia’s top 200 companies by market capitalisation is down 1.19 percent.

Incoming RBA governor Michele Bullock is seen during a meeting with Australian Prime Minister Anthony Albanese and Australian Treasurer Jim Chalmers at Parliament House in Canberra, Australia, on July 14, 2023. AAP Image/Lukas Coch

Forecast for the Economy

The RBA said the Australian economy grew a little more than expected in the first half of the year.

“But the economy is still experiencing a period of below-trend growth and this is expected to continue for a while. High inflation is weighing on people’s real incomes and household consumption growth is weak, as is dwelling investment,” the RBA said.

“Notwithstanding this, conditions in the labour market remain tight, although they have eased a little.

“Given that the economy and employment are forecast to grow below trend, the unemployment rate is expected to rise gradually to around 4½ percent 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 Still High

Inflation in Australia rose 5.2 percent in the 12 months up to August 2023, Australian Bureau of Statistics (ABS) stats show.

The figures, released by the ABS last week, showed transport inflation jumped 7.4 percent, housing rose 6.6 percent, and food and non-alcoholic drinks lifted 4.4 percent.

Fuel prices surged a massive 13.9 percent compared to the same time last year, rising by 9.1 percent in August alone.

ABS head of prices statistics, Michelle Marquardt, said inflation rose but was still below the December 2022 peak.

“This month’s annual increase of 5.2 percent is up from 4.9 percent in July. Annual inflation remains below the peak of 8.4 percent in December 2022,” she said last week.