As expected, the Reserve Bank of Australia (RBA) has chosen to keep the official cash rate on hold at 4.35% at today’s Monetary Policy Board Meeting.
In arriving at its position, the RBA noted that “inflation remains above target and is proving persistent”.
“Inflation is still some way above the midpoint of the 2%–3% target range… In year-ended terms, underlying inflation has now been above the midpoint of the target for 11 consecutive quarters. And quarterly underlying CPI inflation has fallen very little over the past year”.
The RBA also noted that the “outlook remains highly uncertain”.
On the one hand, “high unit labour costs and the persistence of inflation – particularly in the services sector – suggest there are upside risks to inflation. Wages growth appears to have peaked but is still above the level that can be sustained given trend productivity growth”.
On the other hand, “momentum in economic activity has been weak, as evidenced by slow growth in GDP, a rise in the unemployment rate and reports that many businesses are under pressure. And there is a risk that household consumption picks up more slowly than expected, resulting in continued subdued output growth and a noticeable deterioration in the labour market”.
The RBA statement closed by suggesting that rates will remain on hold, pending the results of incoming data:
“Data have reinforced the need to remain vigilant to upside risks to inflation and the Board is not ruling anything in or out. Policy will need to be sufficiently restrictive until the Board is confident that inflation is moving sustainably towards the target range”.
“The Board will rely upon the data and the evolving assessment of risks to guide its decisions. In doing so, it will continue to pay close attention to developments in the global economy and financial markets, trends in domestic demand, and the outlook for inflation and the labour market. The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome”.
This was a straight forward decision from the RBA. Where it goes from here will depend on the data.
