RBA Holds Interest Rates Steady Amid Inflation Concerns

The Reserve Bank of Australia (RBA) has decided to keep its cash rate steady at 4.35% in their latest meeting. This means that the interest rate paid on Exchange Settlement balances remains unchanged at 4.25%. It’s a big moment, especially for borrowers hoping for some relief.

Inflation has dropped significantly since it peaked back in 2022, with the RBA’s goal of balancing the economy through higher interest rates. However, inflation is still above the desired target range of 2-3%, sitting at 3.9% as of June. The latest figures show that inflation is persistent, with underlying inflation remaining above the midpoint of the target for 11 quarters now.

Looking ahead, there’s uncertainty about how quickly inflation can return to that target range. The RBA’s forecasts suggest it might not happen until late 2025, which is a bit slower than expected. This delay is partly because the economy’s capacity to meet rising demand seems to be weaker than previously thought.

While there are concerns about inflation, there’s also a weak momentum in the economy. The GDP growth has been slow, unemployment is rising, and businesses are feeling the pressure. RBA Governor Michele Bullock mentioned that any hopes for rate cuts this year are not aligned with the bank’s current thinking.

The board will meet again in September, November, and December, but Bullock indicated that February might be the earliest time we could see a rate cut. This continues to leave borrowers in a tough spot as they wait for potential relief.

Globally, things are also a bit shaky with the Chinese economy softening and financial markets showing volatility. The RBA acknowledges that changes abroad can have an impact on the Australian economy, which adds another layer of uncertainty. Despite all this, maintaining price stability and full employment remains a top priority for the RBA.