The RBA maintains its interest rate at 4.1% at the September meeting but does not rule out a new adjustment

He Reserve Bank of Australia (RBA) has announced that it is keeping its interest rates unchanged at 4.1% during their September monetary policy meeting, as expected. This is the third consecutive meeting in which rates are not modified after raising them 25 basis points last June.

RBA statement

At its meeting today, the RBA Board decided to leave the cash rate target unchanged at 4.10% and the interest rate paid on Exchange Settlement balances unchanged at 4.00%.

Interest rates have increased by 4 percentage points since May of last year. The higher 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 rate hike to date and the economic outlook.

Inflation in Australia has passed its peak and the monthly CPI indicator for July showed a further drop. But inflation is still too high and will remain so for some time. Although inflation in the prices of goods has decreased, the prices of many services are increasing rapidly. Rent inflation is also high. The central forecast is that CPI inflation will continue to decline and return to the target range of 2% to 3% by the end of 2025.

The Australian economy is experiencing a period of below-trend growth and this is expected to continue for a while. High inflation is weighing on people’s real income and growth in household consumption is weak, as is investment in housing. 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 increase 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 picks up.

Returning to the inflation target within a reasonable period of time 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 were to become entrenched in people’s expectations, it would be very expensive to bring it down later, which would mean 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 they remain so.

Recent data is consistent with inflation returning to the 2-3% target range over the forecast horizon and continued growth in output and employment. Inflation is coming down, the labor market remains strong, and the economy is operating at a high level of capacity utilization, even though growth has slowed.

There are significant uncertainties surrounding the outlook. Service price inflation has been surprisingly persistent abroad and the same could be true in Australia. There is also uncertainty about lags in the effect of monetary policy and how firms’ 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 experience a painful squeeze on their finances, while some benefit from rising house prices, large savings pools, and higher interest income. And globally, there is increased uncertainty about the outlook for the Chinese economy due to ongoing tensions in the real estate market.

Further monetary policy tightening may be necessary to ensure that inflation returns to its target within a reasonable period of time, but that will still depend on the data and the evolution of the risk assessment. In making its decisions, the Board will continue to pay special attention to developments in the world 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 its target and will do what is necessary to achieve it.