The Reserve Bank of Australia (RBA) has left the cash rate target unchanged at 4.35%.
According to the central bank, inflation has fallen “substantially” since its peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance.
“But inflation is still some way above the midpoint of the 2-3% target range,” it says.
“In underlying terms, as represented by the trimmed mean, the CPI rose by 3.9% over the year to the June quarter, broadly as forecast in the May Statement on Monetary Policy (SMP). But the latest numbers also demonstrate that inflation is proving persistent. 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.”
Relief for retailers
The Australian Retailers Association (ARA) says the RBA’s decision will be a relief for retailers.
According to ARA CEO Paul Zahra, retailers continue to battle the dual headwinds of slow spending coupled with higher costs of doing business.
“Many Australian household budgets remain under significant pressure,” he says.
“While there is no immediate relief in sight, [this] announcement will help keep consumer and business confidence steady.”
What’s next
Looking ahead, CreditorWatch Chief Economist Anneke Thompson believes the RBA will begin to cut the cash rate before inflation gets back within the target band.
“This is because of the known lag effect of tightening monetary policy, and it will be very keen to not undo the remarkable gains in employment and the labor force over the last few years,” she says.
“CreditorWatch’s June Business Risk Index data also points to significant cooling in business activity, with the average value of invoices held by businesses having fallen 49.9% over the year to June 2024. Holding the cash rate at this peak for too long risks causing further, unnecessary pain on many small businesses, particularly in the construction, retail and hospitality sectors.”
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