Interest rate update

The Reserve Bank of Australia (RBA) has decided to leave the cash rate on hold at 4.35%

Inflation continues to exceed the 2–3% target range, with underlying CPI rising by 3.9% over the year to the June quarter. Although inflation has decreased since its peak in 2022, it remains stubbornly high, having stayed above the midpoint of the target for 11 consecutive quarters. Recent data shows only a slight reduction in quarterly inflation over the past year, highlighting the persistence of inflationary pressures.

Economic forecasts suggest that inflation may return to the target range by late 2025 and approach the midpoint by 2026. This timeline is slightly longer than previous projections due to a larger-than-expected gap between aggregate demand and supply. The increased forecast for domestic demand and a weaker capacity to meet this demand contribute to this extended timeframe, exacerbated by ongoing inflation and a robust labor market.

The RBA remains focused on bringing inflation back to target and is prepared to maintain restrictive policies until inflation trends towards the target range. The approach will be guided by ongoing data and risk assessments, considering global economic conditions, financial market volatility, and domestic economic indicators. The Board is committed to carefully navigating these uncertainties to achieve its inflation goals.

In addition to domestic challenges, global factors also play a crucial role in shaping the economic outlook. The softened outlook for the Chinese economy has impacted commodity prices, and recent global financial market volatility, coupled with the depreciation of the Australian dollar, adds to the uncertainty. Central banks worldwide are adjusting their policies in response to inflation risks, and geopolitical tensions could disrupt supply chains further. These international dynamics add another layer of complexity to the economic environment, influencing both inflationary pressures and overall economic stability. The RBA will continue to monitor these global developments closely, adjusting its policies as needed to address both domestic and international economic challenges.

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General advice warning
‍The information provided is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.