RBA rates to stay on hold
But no commitment due to uncertainty on inflation
The Reserve Bank has cautioned it is “not ruling anything in or out” for future changes to interest rates, as it kept the official cash rate steady at 12year high of 4.35 per cent.
In a move that was widely expected, the central bank kept the cash rate on hold for a third consecutive time on Tuesday, as it awaits more evidence that a sharp downturn in inflation will continue.
In a statement accompanying the decision, the RBA board said while recent data had showed price pressures were easing, they remained too high and it would be “some time yet” before inflation returned to the bank’s 2-3 per cent target band.
“The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the board is not ruling anything in or out,” the statement read.
It represents a pivot from the guidance at the RBA’s February meeting where it said “a further increase in interest rates cannot be ruled out”.
The change is likely to be interpreted by economists and analysts as a softening in the board’s language. Pointing to a “highly uncertain” outlook, the board also cited multiple risks that could derail Australia’s path to reducing inflation.
“While there have been favourable signs on goods price inflation abroad, services price inflation has remained persistent and the same could occur in Australia,” it said.
The board also cited the “very high” growth in unit labour costs, which measures the gulf between wages growth and productivity gains.
“(Unit labour costs have) begun to moderate slightly as measured productivity growth has picked up in the past two quarters but whether this trend will be sustained is uncertain,” the board said.
Following the board’s decision, governor Michele Bullock was due to address the media at the RBA’s temporary headquarters at Chifley Square, Sydney, as its current offices undergo a multimillion-dollar renovation.
The RBA has ratcheted interest rates 13 times since May 2022 to slow, inflation which has eased from its peak of 7.8 per cent in the year to December 2022, to just 3.4 per cent in January.
But with bubbling wages growth, anaemic productivity and continued tightness in the labour market, some economists have cautioned that relief for household borrowers could be delayed.