RBA keeps interest rates at 4.1% in October as it anticipates further adjustment may be necessary

He The Reserve Bank of Australia (RBA) announced this Tuesday that it is maintaining its interest rates at 4.1% during the October monetary policy meeting. As expected, the entity leaves its rates unchanged for the fourth consecutive meeting, after raising them 25 basis points to the current level last June.

RBA statement

At its meeting today, the Board decided to leave the target cash rate unchanged at 4.10% and the interest rate paid on Foreign Exchange Settlement balances unchanged at 4%.

Interest rates have increased by 4 percentage points since May of last year. 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 again decided to keep interest rates stable this month. This will give more time to assess the impact of the interest rate rise to date and the economic outlook.

Inflation in Australia is past its peak, but remains too high and will remain so for some time. Timely inflation indicators suggest that goods price inflation has declined further, but prices of many services continue to rise rapidly and fuel prices have increased markedly recently. Rent inflation also remains high. The central forecast is that CPI inflation will continue to decline and back within the 2% to 3% target range by the end of 2025.

Growth in the Australian economy was slightly stronger than expected during the first half of the year. But the economy is still experiencing a period of below-trend growth and this is expected to continue for some time. High inflation is weighing on people’s real incomes and household consumption growth is weak, as is housing investment. Despite this, conditions in the labor market remain difficult, although they have eased somewhat. With the economy and employment expected to grow below trend, the unemployment rate is expected to gradually rise to around 4.5% by the end of next year. Wage growth has picked up over the past year, but remains consistent with the inflation target, provided productivity growth recovers.

Re-achieving the inflation target within a reasonable period continues to be the Board’s priority. High inflation makes life difficult for everyone and damages the functioning of the economy. It erodes the value of savings, hurts family budgets, makes it harder for businesses to plan and invest, and worsens income inequality. And if high inflation became entrenched in people’s expectations, it would be very costly to reduce it later, meaning even higher interest rates and a further rise in unemployment. To date, medium-term inflation expectations have been consistent with the inflation target and it is important that this remains the case.

Recent data is consistent with a return of inflation to the target range of 2% to 3% over the forecast period and continued growth in output and employment. Inflation is falling, the labor market remains strong and the economy is operating at a high level of capacity utilization, although growth has slowed.

There are significant uncertainties surrounding the outlook. Services price inflation has been surprisingly persistent overseas and the same could happen in Australia. There is also uncertainty about lags in the effect of monetary policy and how companies’ wage and pricing decisions respond to slower growth in the economy at a time when the labor market remains tight. The outlook for household consumption also remains uncertain: many households are experiencing a painful squeeze on their finances, while some are benefiting from rising house prices, significant savings reserves and higher interest income. And globally, there remains a high level of uncertainty around the outlook for the Chinese economy due to current tensions in the property market.

Further tightening of monetary policy may be necessary to ensure that inflation returns to its target within a reasonable time frame, but this will continue to depend on data and evolving risk assessments.. In making its decisions, the Board will continue to pay close attention to developments in the global economy, trends in household spending, and the outlook for inflation and the labor market. The Board remains steadfast in its determination to return inflation to target and will do whatever is necessary to achieve that result.