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RBA keeps cash rate unchanged after inflation dip

Breaking news from the Reserve Bank as they decide to keep the cash rate unchanged at 4.1% for the second consecutive month. The recent dip in inflation during the June quarter influenced the central bank’s decision to hold off on any rate hikes.

RBA Governor Philip Lowe expressed optimism about the inflation trend, noting that the higher interest rates have been effective in balancing supply and demand in the economy. Consequently, the bank will maintain the current rate to monitor the impact of previous rate increases and assess the economic outlook.

While many economists predicted this pause, Dr. Lowe stated that the possibility of further rate hikes remains on the table, contingent on economic data and risk assessments.

The RBA’s forecast indicates a slowdown in headline inflation to approximately 3.25% by the end of next year, returning to its target range of 2-3% by late 2025.

Regarding the economy, the RBA characterized it as sluggish, with below-trend growth expected to persist. Household consumption and dwelling investment growth remain weak, leading to a projected GDP growth of around 1.75% next year and slightly above 2% in 2025.

Despite tight labour market conditions, there has been a slight easing, though job vacancies and advertisements remain high. Labour shortages have also improved according to firm reports.

As a result of below-trend growth, the unemployment rate is predicted to gradually rise from its current 3½ per cent to around 4½ per cent by late next year.

The RBA is set to release its complete new forecasts in its third Statement on Monetary Policy for 2023, scheduled for this Friday.

Stay tuned for further updates as the economic landscape continues to evolve.