Powered by MOMENTUM MEDIA
Broker Daily logo

Stubborn inflation keeps RBA firm on cash rate

Stubborn inflation keeps RBA firm on cash rate
expand image

As predicted, the central bank has decided to keep the cash rate steady at 4.35 per cent. Stubborn inflation has been identified as the key reason for this move.

Yesterday (4 November), the Reserve Bank of Australia (RBA) announced the cash rate, holding firm at 4.35 per cent. Economists and punters alike were expecting this decision, which was further cemented in governor Michele Bullock’s remarks.

“Today the board decided to leave the cash rate unchanged. The forecast published today are very similar to those that we’ve published in August,” Bullock said.

“Underlying inflation is forecast to be back in the top of the target band by end 2025. And to the midpoint of the band by the end of 2026. Given this and the news since the November meeting, the board judged that it was appropriate to leave the cash rate where it is.”

==
==

While the CPI figures are looking better after inflation dropped to 2.8 per cent, within the RBA’s 2–3 per cent target, this wasn’t enough to prompt a cash rate cut from the central bank.

“Inflation has fallen substantially since the peak at the end of 2022 as supply chain issues have abated and higher interest rates have been working to bring aggregate demand and supply closer to balance,” Bullock said.

“Underlying inflation in the September quarter is still too high. While trimmed mean inflation declined to 3.5 per cent over the year, it was little changed at 0.8 per cent in the quarter.

“This time last year, trimmed mean was at 5.2 per cent. So, we have made good progress. But as we’ve seen throughout the year, this last part of the job of getting inflation down is not easy or straightforward.”

She continued: “Some price pressures remain, and that’s what’s keeping pressure on households. Headline inflation was 2.8 per cent over the year to September quarter, down from 3.8 per cent.”

September saw fuel and electricity prices see a drop, providing some temporary cost-of-living relief. This reportedly was enough to hold off on a rate drop for the time being. Furthermore, a low unemployment rate is helping drive these results.

“Services inflation remains elevated, although growth in advertised rents has slowed more than expected in recent months, and this will flow through to lower CPI rent over time,” Bullock said.

“The labour market remains tight, and conditions have been easing gradually. Some indicators have recently stabilised. The unemployment rate has been close to 4.1 per cent for some time now.”

“Labour availability is constrained. Wages growth has continued to ease but still generally above rates consistent with inflation targets given the weak productivity growth. So what does all this mean? Right now we believe that settings are restrictive and we need to keep rates restrictive for the time being.”

Despite this, Bullock noted that inflation is moving towards target as expected. Once underlying inflation sees substantial drops, the RBA could make a move to drop the cash rate.

“The board needs to be confident that inflation is moving sustainably towards the target and we need to see more progress on underlying inflation coming down. We’re watching the data closely and we’re not ruling anything in or out,” she said.

Related: One year on – cash rate holds at 4.35%

More on Economy
21 November 2024
After witnessing some positive trends in the offset of COVID-19, business failures across the country have picked up ...
21 November 2024
With GDP growth at just 0.2 per cent as of the June quarter of 2024, small and medium-sized enterprises (SMEs) are ...
20 November 2024
The RBA minutes for the November meeting revealed that members recognised the importance of flexibility in monetary ...