RBA Keeps Cash Rate Unchanged But Remains Vigilant To Upside Risks

• Published on
• 11 Jun 2024, 06:43 PM

By Sophia Rodrigues

(Sydney, June 18, 2024 ) -- The Reserve Bank of Australia left the cash rate target unchanged at 4.35% as widely expected and retained the guidance that it is not ruling anything in or out.

However, the tone of the statement and Michele Bullock’s comments at the media conference were, on balance, on the hawkish side.

In the statement, the RBA acknowledged that the pace of decline in inflation has slowed in the most recent data. It pointed to the April inflation indicator which rose 3.6% in headline terms and by 4.1% excluding volatile items and holiday travel.

At the media conference, Bullock said that there was limited information on services inflation in the recent data and its persistence is a key uncertainty. “We need more comprehensive reading on inflation to get a handle on services inflation,” she said.

There was a lot of emphasis on household consumption in the statement, with the RBA noting that real disposable income is expected to grow later in the year, assisted by lower inflation and tax cuts. And for the first time since December last year the RBA pointed to the rise in housing prices, suggesting it is an additional upside risk for consumption growth.

On the other hand, Bullock noted that many households are feeling the effect of higher inflation and higher interest rates. She added that GDP barely grew in the March quarter and per capita consumption has been declining.

Overall, recent data have been mixed but reinforced the need to remain vigilant to upside risks to inflation, the RBA said.

The RBA said it remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome.

Bullock said, “We need a lot to go our way if we are going to get inflation back down to the 2-3% target range.”

--Contact: Sophia@centralbankintel.com