Central bank to closely monitor future developments amid uncertain economic outlook
The Reserve Bank of Australia (RBA) considered the possibility of raising interest rates by 25 basis points at its policy meeting earlier this month before deciding to leave the cash rate target unchanged.
The bank board, led by governor Michele Bullock (pictured), held a comprehensive review of global and domestic economic conditions. The decision to maintain the cash rate target at 4.35% was influenced by this detailed assessment of inflation trends, economic growth rates, and financial conditions both internationally and within Australia.
It took into account a moderation in domestic inflation, with both headline and underlying measures declining more than anticipated in the December quarter of 2023.
According to the minutes of the Feb. 5-6 monetary policy meeting of the Reserve Bank board, “members noted that there had been further progress towards the board’s objectives but that more progress was required and the outlook remained uncertain. Inflation in Australia had declined but was still well above target.”
The case to raise the cash rate further focussed on the observation that it would take some time for inflation to return to target and the labour market to full employment, while the case to leave the cash rate target unchanged centred on the observation that the risk of inflation not returning to the board’s target within a reasonable timeframe had eased.
The Minutes of the February 2024 Monetary Policy Meeting of the Reserve Bank Board has been released - https://t.co/2YNjb7irNg
— Reserve Bank of Australia (@RBAInfo) February 20, 2024
“The moderation in inflation over preceding months had been slightly larger than previously expected, and global inflation outcomes had provided additional confidence that inflation in Australia would moderate further,” the minutes read.
The RBA board emphasised the importance of monitoring future economic developments closely, acknowledging the high level of uncertainty surrounding the economic outlook and the potential risks of inflation persisting or consumer spending weakening more than expected.
It also concurred that it would be prudent to keep the option of a future rate hike on the table, indicating a flexible approach to monetary policy in response to evolving economic conditions. The board members acknowledged that increasing rates would not preclude the possibility of rate cuts if the economy were to show signs of weakening.
Moreover, the board highlighted that the current projections, which anticipate inflation returning to the target range by 2025, are based on the assumption that there will be no additional increases in interest rates.
Want to be regularly updated with mortgage news and features? Get exclusive interviews, breaking news, and industry events in your inbox – subscribe to our FREE daily newsletter. You can also follow us on Facebook, X (formerly Twitter), and LinkedIn.
