Reserve Bank of Australia maintains cash rate at 4.35%
05 Dec 23 2 min read
Insights
- Reserve Bank of Australia has maintained cash rate target at 4.35 per cent and interest rate on Exchange Settlement balances at 4.25 per cent.
- This decision follows a 25 basis point rate increase due to slower-than-expected progress in curbing inflation.
- Factors including a strong economy, high inflation and tight labour market influenced the decision.
The decision comes after a 25-basis point increase in interest rates last month, following a four-month period of steady rates. The central bank's decision was influenced by the slower-than-expected progress in bringing inflation back to the target range of 2 to 3 per cent.
While the economy displayed stronger performance in the first half of the year than anticipated, underlying inflation exceeded August forecasts, particularly in the services sector. Tight labour market conditions and rising housing prices also contributed to the decision, as the Board sought to ensure that inflation would return to the target within a reasonable timeframe, Reserve Bank of Australia Governor Michele Bullock said in a statement.
Recent data on the domestic economy has largely aligned with expectations, with the monthly CPI indicator for October indicating moderation in inflation, primarily driven by the goods sector. Wages growth increased in the September quarter, in line with the earlier Fair Work Commission decision on award wages, but further substantial growth is not anticipated unless productivity improves. Labour market conditions are gradually easing but remain tight.
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The impact of recent interest rate rises on demand, inflation, and the labour market will continue to be monitored closely. High inflation is seen as detrimental to the economy, eroding savings, impacting household budgets, and hindering business planning and investment.
Governor Bullock highlighted the importance of maintaining medium-term inflation expectations consistent with the inflation target. Uncertainties persist regarding the outlook, both domestically and internationally, with concerns about persistent services price inflation and global economic uncertainties.
The decision on further tightening of monetary policy will depend on evolving data and risk assessments.
Fibre2Fashion News Desk (KD)
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