RBA holds rates steady but hints at possible hike

By Our Reporter
Interest Rates

The Reserve Bank has decided to maintain official interest rates but indicated a potential increase later in the year if inflation doesn’t subside. Following a two-day meeting in Sydney, the bank board announced on Tuesday that the official cash rate would remain at 4.35 per cent, unchanged since November last year.

Prior to the meeting, the financial markets and economists largely anticipated no change, especially after the March quarter national accounts revealed the economy was barely growing in the first three months of the year. With just four more official meetings this year, the RBA’s decision was aligned with expectations.

Several economic indicators have shifted since the last board meeting. The unemployment rate has edged down to 4 per cent, though the number of job ads continues to fall. Meanwhile, the Fair Work Commission announced a 3.75 per cent increase in the minimum wage, effective from July 1. This is the final meeting before the implementation of the $23 billion stage 3 tax cuts in the new financial year.

Prime Minister Anthony Albanese addressed cost-of-living pressures, stating the government is taking measures without exacerbating inflation. RBA Governor Michele Bullock will provide further insights into the decision at a press conference scheduled for 3.30pm.

The RBA board highlighted ongoing uncertainties in the economic outlook since its recent forecasts. One of the most significant concerns remains around household spending. Although the unemployment rate fell to 4 per cent, job ads are declining, raising concerns about the labour market’s future.

Household consumption is a critical factor in supporting economic growth over the coming year. However, there is a risk that it may increase more slowly than anticipated, leading to subdued output growth and further deterioration in the labour market.

Monetary policy appears to be working, albeit not as swiftly as the RBA might prefer. The central question now is how patient the RBA will be in managing economic conditions amidst considerable uncertainty.

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