Yahoo Finance Rates on hold yet inflation risks remain on RBA's radar
Inflation is coming down but not as fast as the central bank would like, keeping the risk of an interest rate hike alive for mortgage-holders.
Reserve Bank of Australia governor Michele Bullock confirmed board members considered at their June meeting the case to lift interest rates, but ultimately landed on no change.
While the central bank is not ruling anything in or out, Ms Bullock said the case to cut rates was not discussed at the meeting.
At its meeting today, the Board decided to leave the cash rate target unchanged at 4.35 per cent and the interest rate paid on Exchange Settlement balances unchanged at 4.25 per cent. https://t.co/5dtnTIw9im
— Reserve Bank of Australia (@RBAInfo) June 18, 2024
A post-meeting statement highlighted a sluggish economy, as seen in the March quarter national accounts, the unemployment rate trending higher, and slower-than-expected wages growth.
Yet "risks to the upside remain", the board said, with inflation persistent and national accounts including upward revisions to household consumption.
"There's been a few things that have made the board alert to the upside risks," Ms Bullock said in a media conference.
"If it looks like inflation is not coming sustainably back in the band within a reasonable amount of time, that just increases the risks that inflation expectations will adjust.
"And that will make it harder to get inflation down in the future."
Interest rates have been on hold for several months as price pressures waned throughout 2023, although progress on inflation, which clocked in at 3.6 per cent in the March quarter, has since stalled.
Deloitte Access Economics partner Stephen Smith said keeping interest rates on hold was the correct call with an economy "barely crawling along".
He warned against lifting rates higher to force inflation down faster.
"Nobody likes the fact that inflation remains just outside of the RBA's target band," he said.
"But it is better than a recession."
Commonwealth Bank economist Gareth Aird said the RBA was still concerned about the pace at which inflation was falling, although it was also alert to the risks of the economy weakening by more than expected.
"Reading between the lines, the board appears increasingly concerned that walking the narrow path between preserving gains in the labour market, whilst returning inflation to the target band within an acceptable time frame is getting narrower," he wrote in a note.
CBA still believe the next interest rate move will be down, like the majority of forecasters, yet Mr Aird said the risks pointed to a hike at the next meeting if June quarter underlying inflation was "uncomfortably high".
Treasurer Jim Chalmers said rate hikes already in the system were "hammering the economy".
"Inflation is higher than we would like, but it's been moderating substantially since its peaks in 2022," he told reporters in Sydney.
The word "uncertainty" was used eight times in the RBA's post-meeting statement, shadow treasurer Angus Taylor said.
"And the only thing that is certain is that this government's budget absolutely failed to deal with those inflationary interest rate pressures that Australians are facing," he told reporters in Canberra.
