RBA interest rate announcement and commentary - December 2023
The Reserve Bank of Australia (RBA) has decided to leave the cash rate on hold at 4.35%
The Board recently increased interest rates by 25 basis points after a period of stability, Michelle Bullock RBA Governor cited concerns that "progress in reining in inflation towards the 2 to 3 per cent range was slower than anticipated." Despite initial economic strength, growth remained below expectations, with "underlying inflation higher than expected at the time of the August forecasts, including across a broad range of services." This prompted the Board to act due to the rising risk of prolonged high inflation.
Recent economic updates align closely with predictions. "October's CPI indicator hinted at a continued moderation in inflation, predominantly influenced by the goods sector." However, insights into service sector inflation were limited. Overall, the inflation outlook, including wage growth and market conditions, seems in line with the target.
"The elevated interest rates are intended to recalibrate the equilibrium between supply and demand in the economy." These measures, although aiming to address inflation, are also straining real incomes and stifling household consumption and dwelling investment. Pausing rate changes would afford time to gauge the impact of rate hikes on demand, inflation, and the job market. The paramount objective remains steering inflation back to target, as "persistent high inflation adversely affects savings, household budgets, business planning, and exacerbates income disparities."
Uncertainties persist regarding the economic landscape. Although there are positive indicators in global goods inflation, the sustainability of persistent services price inflation is a concern. The necessity for further tightening in monetary policy to steer inflation back to the target hinges on evolving data and risk assessments. The Board will remain vigilant, monitoring global economic trends, domestic demand, and the inflation-labor market dynamic to execute necessary actions to achieve their inflation objective.
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General advice warning
The information provided is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.