The Reserve Bank of Australia has held the cash rate target unchanged at 4.35% as a result of the Board decision yesterday. This represents the eighth rate hold decision since December 2023.
RBA: https://www.rba.gov.au/statistics/cash-rate
Looking back, the emergency policy settings back in 2020 saw the cash rate reduced right down to a historic low of 0.1%, before it gradually increased again for 12 times until the Board decided to hold the rate hikes since December 2023.
Reflecting on the fiscal and monetary measures during the Covid pandemic since the release of the Covid-19 Response Inquiry Report, Governor Michele Bullock in her afternoon press conference, defended the emergency measures, citing that ‘it is very easy with hindsight’.
There is no doubt that monetary policy is currently restrictive and is considered to be working ‘broadly as anticipated’. However, due to many uncertainties, the Board is adamant on keeping interest rates restrictive for the time being. In its statement, the Board uses the same phrase as it has in the past that it is not ruling anything in or out as it remains watch on the upside risks to inflation.
In this November decision, the RBA’s forecast are very similar to those published in August and the outlook remains ‘highly uncertain’. The Board’s priority remains to sustainably return (inflation) to target within a reasonable timeframe – to the top of the target band of 2-3% by the end of 2025, and to the mid-point of this band by the end of 2026.
The headline inflation rate was 2.8% over the year to the September quarter, down from 3.8%. This was ‘as expected’ due to declines in fuel and electricity prices in the September quarter.
Services inflation remains elevated although growth in advertised rents has slowed more than expected in recent months, and this is expected to flow through to lower CPI rent ovdr time.
One key headline from the Board’s statement on the monetary policy decision is that underlying inflation in the September quarter (3.5%) is still too high. Although progress has been made up until this point to keep inflation down, the forecast path for this number reflects a judgement that demand remains above the economy’s supply capacity.
Conditions in the labour market remain tight and although conditions have been easing gradually, some indicators have recently stabilised. Unemployment rate was 4.1% in September, the participation rate remains at record highs and vacancies are still elevated.
The governor emphasied in her press conference that despite the fact that the growth in the economy is declining, aggregate demand is still above the ability of the economy to supply the goods and servies, putting more inflationary pressures as a result.
The next RBA Board meeting, the last one for 2024, will be held on 9-10 December.
You can watch the Governor Press Conference including the journalist Q&A session here.
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