Reserve Bank Australia holds the cash rate at 4.35%.
At its monetary policy meeting, the Reserve Bank of Australia (RBA) Board decided to leave the cash rate target unchanged at 4.35 % and the interest rate paid on Exchange Settlement balances unchanged at 4.25 % . The three key takeaways from the September 24th meeting remain unchanged.
Inflation remains above target and is proving persistent.
The outlook remains highly uncertain.
Returning inflation to target is the RBA’s priority.
Let’s unpack each of the key points from the media release.
Inflation remains above target and is proving persistent.
Inflation has decreased since its 2022 peak due to higher interest rates but remains above the 2–3 % target range.
The trimmed mean shows inflation at 3.9 % for the year ending in June.
Headline inflation fell in July and may decline temporarily due to government cost-of-living relief, but forecasts suggest it won't sustainably reach target levels until 2026.
Underlying inflation has exceeded the target's midpoint for 11 consecutive quarters with minimal decline over the past year.
The outlook remains highly uncertain.
August's central forecasts indicated underlying inflation would return to the 2–3 % target range by late 2025 and near the midpoint in 2026.
GDP data for the June quarter confirm weak growth, with earlier declines in real disposable incomes and restrictive financial conditions impacting consumption, especially discretionary spending.
However, aggregate consumer demand, including spending by temporary residents like students and tourists, showed more resilience.
Wage pressures have eased, but labour productivity remains at 2016 levels despite recent gains.
Labour market conditions remain tight, though they are easing slightly. The unemployment rate is 4.2%, up from 3.5% in mid-2023. Participation rates are at record highs, vacancies are elevated, and average hours worked have stabilised.
The latest data maintain the Board's August view that current policy is restrictive and effective, though uncertainties persist.
Uncertainty about the international outlook persists.
Some central banks have eased policies without entirely removing restrictions and stay vigilant about risks, including weaker labour markets and stronger inflation.
China's economic outlook has weakened, impacting commodity prices, while geopolitical uncertainties are significant.
Returning inflation to target is the priority.
The RBA Board's top priority is returning inflation to target sustainably and promptly, which aligns with the RBA’s mandate for price stability and full employment.
Long-term inflation expectations have so far matched the target, and it is vital to maintain this.
Headline inflation may decline briefly, but underlying inflation remains too high, indicating inflation momentum.
August SMP projections suggest it will take time for inflation to reach the target range sustainably.
Recent data highlight the need for vigilance against inflation risks, and the Board is keeping options open.
The policy must stay restrictive until there's confidence in the sustainable movement toward the target range.
The Reserve Bank of Australia final paragraph
The Board will continue to rely upon the data and the evolving assessment of risks to guide its decisions. In doing so, it will pay close attention to developments in the global economy and financial markets, trends in domestic demand, and the outlook 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 outcome.
Source: Reserve Bank of Australia Media Release 24th September 2024.
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