The Reserve Bank of Australia (RBA) elected to leave the cash rate unchanged at 4.10 per cent at its September board meeting, the final meeting with Philip Lowe as the bank’s governor.
The latest decision, which was widely anticipated by the market and most economists, means that interest rates have now remained on hold for three consecutive meetings.
The RBA’s last rate hike of 25 basis points took place in June, resulting in a cumulative 400 basis points of monetary tightening since May last year.
“Having last raised interest rates in June, the RBA currently seem to judge the level and stance of monetary policy as appropriate,” Commonwealth Bank economist Harry Ottley said ahead of Tuesday’s meeting.
“The data flow since the August board meeting – which include the labour force survey and the monthly CPI indicator – did not contain any ‘smoking gun’ for a further rate hike. The deteriorating outlook for China, which the RBA elevated to a key uncertainty in August, adds weight to an on-hold decision in September.”
The monthly CPI indicator showed that inflation eased to 4.9 per cent over the 12 months to July, down from 5.4 per cent in June and a peak of 8.4 per cent last December, while the trimmed mean CPI indicator rose by 5.6 per cent, the smallest annual increase since last July.
“The data flow has been constructive since the August board meeting, with ongoing signs of moderating inflationary pressures and static wages growth. Some risks still linger, namely around the labour market, but this is not likely to prompt any further action,” Westpac’s economists said.
“Rather, the RBA should continue to wait and assess the cumulative impact of the tightening cycle and the evolution of risks hereafter.”
The RBA’s August meeting minutes revealed that board members see a “credible path” back to the central bank’s inflation target of 2–3 per cent without the need to lift the cash rate beyond 4.1 per cent.
“Members noted that the full effects of the earlier tightening were yet to be recorded in the data. Even so, consumption had already slowed significantly, there were early signs that the labour market might be at a turning point and inflation was heading in the right direction,” the RBA said at the time.
“Considering this and the forecasts, members observed that there was a credible path back to the inflation target with the cash rate staying at its present level.”
In its latest statement on monetary policy, the RBA forecast that annual headline inflation will fall to 4.1 per cent in December. It is then expected to decline to 3.6 per cent in June 2024, 3.3 per cent in December 2024, 3.1 per cent in June 2025, and 2.8 per cent in December 2025.
Dr Lowe’s seven-year term as governor will expire this month, with Michele Bullock to take over from 18 September.
