Reserve Bank of Australia keeps interest rates at 12-year high

The Reserve Bank of Australia (RBA) has maintained its cash rate at 4.35%, marking the highest level in 12 years, reflecting an ongoing commitment to tackle persistent inflationary pressures. This decision aligns with the RBA’s cautious approach, as it navigates the balance between a still-strong labor market and inflation rates that remain above target. In its recent statements, the RBA emphasized its vigilance, keeping all options open in the face of potential risks to inflation.
The RBA’s latest inflation forecast anticipates only a modest reduction in core inflation, with projections suggesting it will decline to 3.4% by year-end from 3.5% in the third quarter. However, inflation is not expected to return to the target range until 2026. This hawkish stance differentiates the RBA from other central banks in major economies, such as the United States, Eurozone, United Kingdom, Canada, and New Zealand, which have either paused or started easing rates as inflationary pressures in their respective regions have moderated.
Alongside these inflationary concerns, the RBA has revised its growth forecasts downward, reflecting weaker-than-expected household consumption. The GDP forecast for 2023 has been lowered to 1.5%, down from 1.7%, and the projection for 2024 has been trimmed to 2.3% from 2.5%. This recalibration indicates the RBA’s recognition of slower economic momentum, as growth in recent quarters has been subdued.
RBA Governor Michele Bullock reiterated the central bank’s commitment to its current policy stance, suggesting that while they have the right settings for now, the RBA is prepared to respond should the economic outlook shift unexpectedly. However, with inflation remaining a primary concern, the possibility of a rate cut appears distant, positioning the RBA as one of the few central banks still focused on a hawkish stance amidst global moves toward easing.