Investing.com - The Reserve Bank of Australia (RBA) has decided to keep the cash rate steady at a 12-year high of 4.35%, a move that some experts warn could impose "further, unnecessary pain" on Australian households and small businesses.
Alongside the rate decision, the RBA released its latest monetary policy statement, outlining key economic forecasts. The statement followed recent data from the Australian Bureau of Statistics, which reported inflation at 3.8%, in line with the RBA’s expectations. This came after a significant drop in the sharemarket on Monday, driven by fears of a recession in the United States following weak jobs data.
The RBA noted that demand for goods and services continues to slightly exceed the economy’s capacity to supply. It now expects underlying inflation, which excludes significant price changes, to return to its target range of 2-3% by late 2025, slightly later than previously forecasted in May.
The bank also expects the headline inflation rate to temporarily drop to 3% by December this year and 2.8% by June next year due to one-off cost-of-living measures like energy rebates. These measures will ultimately be phased out by 2025, causing inflation to rise again.
Spending by households and governments was more resilient earlier this year than expected. Household consumption is forecast to increase by 1.5% for the year ending in December, up from the 1.3% predicted in May. Strong household consumption growth is expected to continue as stage 3 tax cuts and slowing inflation support real household incomes, bolstered by population growth.
The board raised its economic growth forecast for the year to December to 1.7%, up from 1.6% in its last statement. By June 2025, economic growth is expected to reach 2.6%, up from 2.1%.
The labour market looks tighter than previously thought, with wages growing relative to productivity, high labour demand, and a sustained number of job vacancies. The board revised its unemployment forecasts slightly upward to 4.3% by December this year and 4.4% by June next year.