Home > Latest News > BREAKING NEWS: Interest Rate Increases On Hold Retailers Relieved

BREAKING NEWS: Interest Rate Increases On Hold Retailers Relieved

Economists were torn about the Reserve Bank of Australia looming interest decision, which is now out, with the big winners being consumers, especially those looking to refinance low interest mortgages.

At its meeting today, the Board decided to leave the cash rate target unchanged at 4.10%. Since May last year, interest rates have been increased by 4 percentage points.

This is also good news for retailers who were tipping a rate increase.

In their statement earlier today the Reserve Bank claimed that higher interest rates are working to establish a more sustainable balance between supply and demand in the economy and will continue to do so. In light of this and the uncertainty surrounding the economic outlook, the Board decided to hold interest rates steady this month. “This will provide some time to assess the impact of the increase in interest rates to date and the economic outlook”.

They claim that inflation has passed its peak and the monthly CPI indicator for May showed a further decline.

Businessman checking stock market data. He using a mobile phone. Analysis economy data on forex earn graph.

However, they also claim that inflation is still too high and will remain so for some time yet.

They admit that growth in the Australian economy has slowed and conditions in the labour market have eased, although they remain very tight.

Retailers and suppliers report that labour shortages have lessened, yet job vacancies and advertisements are still at very high levels.

Labour force participation is at a record high and the unemployment rate remains close to a 50-year low.

Wages growth has picked up in response to the tight labour market and high inflation.

At the aggregate level, wages growth is still consistent with the inflation target, provided that productivity growth picks up.

The RBA claims that the board remains alert to the risk that expectations of ongoing high inflation will contribute to larger increases in both prices and wages, especially given the limited spare capacity in the economy and the still very low rate of unemployment. Accordingly, it will continue to pay close attention to both the evolution of labour costs and the price-setting behaviour of firms.

The Board is still expecting the economy to grow as inflation returns to the 2–3 per cent target range, but the path to achieving this balance is a narrow one.

A significant source of uncertainty continues to be the outlook for household consumption.

The combination of higher interest rates and cost-of-living pressures is leading to a substantial slowing in household spending. While housing prices are rising again and some households have substantial savings buffers, others are experiencing a painful squeeze on their finances. There are also uncertainties regarding the global economy, which is expected to grow at a below-average rate over the next couple of years.

Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve.

The decision to hold interest rates steady this month provides the Board with more time to assess the state of the economy and the economic outlook and associated risks. In making its decisions, the Board will continue to pay close attention to developments in the global economy, trends in household spending, and the forecasts for inflation and the labour market. The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that.


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