In its recent Tuesday meeting, the Reserve Bank of Australia (RBA) maintained the cash rate at 4.35% and the interest rate on exchange settlement balances at 4.25%, key rates that influence borrowing costs and economic activity.
The Australian central bank noted a moderation in inflation rates, though they remain elevated due to factors such as strong domestic demand and cost pressures. “Recent information suggests that inflation is continuing to moderate, in line with the RBA’s latest forecasts. Monthly CPI was steady at 3.4% over the year to January, with the momentum having slowed in recent months, due to moderating goods inflation. Services inflation remains high and is moderating at a more gradual pace. The data are consistent with continued excess demand in the economy and strong domestic cost pressures, both for labour and other inputs.”
The RBA noted that higher interest rates are working to bring about a sustainable balance between supply and aggregate demand in the economy, although it mentioned that the outlook remains highly uncertain. “While there are encouraging signs that inflation is moderating, the economic outlook remains uncertain.”
The bank’s forecasts suggest inflation will stabilize within the target range of 2% to 3% by 2025, aiming for the 2.5% midpoint by 2026. Services price inflation is expected to moderate gradually as demand moderates and the effects of slower growth in labour and non-labour costs are felt. While employment is anticipated to grow moderately, the unemployment rate, along with core inflation measures, is expected to rise slightly.
The top priority is achieving the inflation target within a reasonable timeframe
The foremost goal remains to bring inflation back to the target range, balancing the need for economic stability and growth. This is consistent with the RBA’s commitment to price stability and full employment.
The Board needs to be confident that inflation is moving towards the target. So far, the medium-term inflation projections have been consistent with the inflation target.
The Bank Board also expects it to be some time before inflation is on a path to the target. Given the uncertainties, the RBA remains open to adjusting interest rates as needed, based on incoming data and assessments of economic risks.The RBA will be guided by the data and by the evolving risk assessment. The Bank continues to monitor closely developments in the global economy, along with trends in domestic demand, inflation projections, and the labor market.
