Central bank governor highlights the key factors behind the cautious approach
The Reserve Bank of Australia’s (RBA) decision to hold the cash rate at 4.35% in its latest board meeting was driven by mixed economic signals and persistent inflationary pressures, according to RBA governor Michele Bullock (pictured above).
“The recent data have been a little mixed,” she said in a statement issued following the central bank’s announcement on Tuesday. “But overall, they reinforce the need to maintain a restrictive monetary policy stance and remain vigilant to the upside risk to inflation.”
Bullock noted that while inflation has eased significantly from its 2022 peak, it remains above the RBA’s target and is proving difficult to bring down further.
“Progress in getting underlying inflation down has slowed, and it’s likely to have remained slow in the September quarter,” she said.
The RBA has been closely monitoring several key economic indicators, including two labour force reports, national accounts data for the June quarter, and the latest monthly Consumer Price Index (CPI).
Bullock stressed that while inflation has been tempered by factors such as the resolution of supply chain issues and easing energy prices, the pace of progress has stalled in recent months. She added that domestic demand continues to exceed the economy’s supply capacity, but the gap is narrowing. The labour market also remains relatively tight, with steady job growth and low layoffs, although forward indicators such as job vacancies have softened.
“Wages growth has passed its peak but remains high relative to productivity growth, which has been weak for some time,” Bullock said.
Housing prices also remain a concern, driven by strong demand and limited supply. However, the pace of rent increases has shown signs of slowing.
In contrast, overall economic activity has been subdued, with GDP growth at just 0.2% in the June quarter, in line with the RBA’s previous expectations.
The central bank’s decision to maintain the current rate, Bullock reiterated, was influenced by a softer-than-expected economic outlook for the near term, along with the risk that household consumption growth may remain weak longer than anticipated.
“The board needs to be confident that inflation is moving sustainably towards the target before any decisions are made about a reduction in interest rates,” she said. “We need to see progress on underlying inflation coming back down toward the target.”
Bullock previously stressed that the board does not expect to be in a position to cut rates in the near term.
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