The Reserve Bank of Australia (RBA) has elected to keep the cash rate unchanged at 4.35% at its February board meeting today. An expected decision given the recent December quarter inflation figures saw inflation reduce to a two-year low of 4.1% in the year.
While this is good news for the economy, inflation is still well above the RBAs target range and is “still weighing on people’s real incomes”.
It’s worth noting consumer spending growth is weakening, yet there is still “continuing excess demand” in the economy, which is seeing “strong domestic cost pressures, both for labour and non-labour inputs.”
The RBA notes that while inflation of goods has moderated substantially, services inflation “declined at a more gradual pace.” This danger led them to state “a further increase in interest rates cannot be ruled out”.
That last statement comes as a surprise to commentators who predicted a more moderate line from the Board after inflation figures went from 5.4% in the year to September 2023, to 4.1% in the year to December 2023.
The RBA Board predicts that a “return to the target range of 2 – 3%” inflation per year will occur in 2025 and will reach the “midpoint of the target range” in 2026.
