Retailers have welcomed the decision by the Reserve Bank, to leave cash rates where they are, ahead of peak holiday buying periods.
At its meeting today, the Board decided to leave the cash rate target unchanged at 4.35 per cent and the interest rate paid on Exchange Settlement balances unchanged at 4.25 per cent.
Last month, the Board increased interest rates by 25 basis points, following a period of four months where it had held interest rates steady.
This decision reflected the Board’s view that progress in bringing inflation back to the target range of 2 to 3 per cent was looking slower than earlier forecast.
The following was released in the RBA statement by Michele Bullock, Governor: Monetary Policy Decision, following the announcement: “While the economy has been experiencing a period of below-trend growth, it was stronger than expected over the first half of the year. Underlying inflation was higher than expected at the time of the August forecasts, including across a broad range of services. Conditions in the labour market had eased but remained tight. Housing prices were continuing to rise across the country as was the number of new mortgages. Given this, the Board judged that the risk of inflation remaining higher for longer had risen and an increase in interest rates was therefore warranted to be more assured that inflation would return to target in a reasonable timeframe.
The limited information received on the domestic economy since the November meeting has been broadly in line with expectations. The monthly CPI indicator for October suggested that inflation is continuing to moderate, driven by the goods sector; the inflation update did not, however, provide much more information on services inflation. Overall, measures of inflation expectations remain consistent with the inflation target. Wages growth picked up in the September quarter but this was expected given that it captured the earlier Fair Work Commission decision on award wages. Wages growth is not expected to increase much further and remains consistent with the inflation target, provided productivity growth picks up. Conditions in the labour market also continued to ease gradually, although they remain tight.
Higher interest rates are working to establish a more sustainable balance between aggregate supply and demand in the economy. The impact of the more recent rate rises, including last month’s, will continue to flow through the economy. High inflation is weighing on people’s real incomes and household consumption growth is weak, as is dwelling investment. Holding the cash rate steady at this meeting will allow time to assess the impact of the increases in interest rates on demand, inflation and the labour market.”
Treasurer Jim Chalmers said the pause in rate rises would be good news for households struggling with cost of living pressures.
“The last thing that people needed at Christmas time was another rate rise, and so I think this decision today from the Reserve Bank will be met with sighs of relief right around Australia,” he said shortly after the RBA decision.
“This is a difficult time of year at the best of times: people are under pressure from the rate rises already in the system, from inflation which is moderating but still too high, and our economy is under pressure from global economic uncertainty as well.”
Chalmers said the economy was making “welcome and encouraging progress in the fight against inflation”, but acknowledged many households were still doing it tough.
“We know that people are finding it difficult to make ends meet, but if you look at the recent data, a look at the recent commentary, it’s very clear now that we are making welcome and encouraging progress in this fight against inflation,” he said.
He said the government’s targeted cost of living relief as well, federal investment, and saving most of last financial year’s budget surplus have helped.
