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Economic uncertainty persists but the RBA believes inflation will continue on a downward trend.
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Bullock brings steady hand to debut as RBA governor
03 October 2023
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10 minute read
Michele Bullock’s debut board meeting as governor of the RBA has left interest rates unchanged at 4.1 per cent for the fourth consecutive month.
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The RBA said it extended the rate pause to give it further time to gauge how an uncertain economy was responding to its aggressive tightening campaign after raising rates 12 times between May 2022 and June 2023.
“There are uncertainties regarding the lags in the effect of monetary policy and how firms’ pricing decisions and wages respond to the slower growth in the economy at a time when the labour market remains tight,” it said.
It also flagged the possibility of further rate increases if needed to ensure inflation returned to its target range of 2-3 per cent in a “reasonable” time frame.
“Inflation in Australia has passed its peak but is still too high and will remain so for some time yet,” the RBA said.
“Timely indicators on inflation suggest that goods price inflation has eased further, but the prices of many services are continuing to rise briskly and fuel prices have risen noticeably of late. Rent inflation also remains elevated.”
“High inflation is weighing on people’s real incomes and household consumption growth is weak, as is dwelling investment.”
“And if high inflation were to become entrenched in people’s expectations, it would be very costly to reduce later, involving even higher interest rates and a larger rise in unemployment.”
ABS data showed inflation crept up to 5.2 per cent in the 12 months to August, but the RBA expected it to continue to decline and be back within its target range in late 2025 despite mixed signals from the economy.
“The outlook for household consumption remains uncertain, with many households experiencing a painful squeeze on their finances, while some are benefiting from rising housing prices, substantial savings buffers and higher interest income,” the statement said.
While growth in Australia was “a little stronger than expected” over the first half of the year, the economy was experiencing a sustained period of “below-trend growth”, the RBA said.
The RBA warned that Australia could experience the persistently “severe” services price inflation seen overseas and there was a high level of economic uncertainty around China, our biggest trading partner, due to ongoing stresses in its property market.
CreditorWatch chief economist Anneke Thompson welcomed the decision to keep rates at 4.1 per cent.
“Continuing weak retail trade and consumer confidence data is giving the board the clear sign that their efforts to reduce demand in the economy have worked very well. While some items in the CPI ‘basket’ continue to record price rises, these rises are by and large not related to high consumer demand, and therefore not enough to convince the RBA to move again to cool demand further,” Ms Thompson said.
CPA Australia senior manager Gavan Ord said the decision would be met with “relief” by households and businesses, and that CPA was against the possibility of further rate hikes.
“Notwithstanding this month’s rate reprieve, small businesses continue to operate in an environment of higher interest rates, rising wages and increased costs. Many will need to pass these costs onto consumers,” he said.
“Our consistent message in recent months has been that prudent businesses should continue to factor in further rate increases into their business projections.”
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