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Last week, the US Federal Reserve cut interest rates by half a percentage point – the first cut for Americans since the early days of the COVID-19 pandemic. Has the Reserve Bank of Australia opted to follow suit in this week’s two-day board meeting?
After holding the cash rate at 4.35 per cent for the entirety of 2024 thus far, including at its August board meeting, the Reserve Bank of Australia has decided to stay the course and hold the cash rate at 4.35 per cent.
In a statement, the RBA board said that the outlook remains uncertain.
“Inflation has fallen substantially since the 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 per cent target range,” it said.
“The central forecasts published in August were for underlying inflation to return to the target range of 2–3 per cent late in 2025 and approach the midpoint in 2026. This reflected a judgement that the economy’s capacity to meet demand was somewhat weaker than previously thought, evidenced by the persistence of inflation and ongoing strength in the labour market.”
Returning inflation to target, the RBA board continued, “is the priority”.
“Sustainably returning inflation to target within a reasonable time frame remains the board’s highest priority. This is consistent with the RBA’s mandate for price stability and full employment. To date, longer-term inflation expectations have been consistent with the inflation target, and it is important that this remains the case,” it said.
“While headline inflation will decline for a time, underlying inflation is more indicative of inflation momentum, and it remains too high.”
