At today’s monetary policy meeting, the Reserve Bank of Australia (RBA) kept the official cash rate on hold at 4.35%.
It also flagged that rates would remain on hold for the foreseeable future.
The RBA Minutes noted that the underlying inflation rate of 3.9% over the year to the June quarter “is still some way above the midpoint of the 2%–3% target range”.
The RBA also noted that its “current forecasts do not see inflation returning sustainably to target until 2026. In year-ended terms, underlying inflation has been above the midpoint of the target for 11 consecutive quarters and has fallen very little over the past year”.
While the RBA acknowledged that the per capita economy is very weak, “growth in aggregate consumer demand, which includes spending by temporary residents such as students and tourists, remained more resilient”.
This was a direct shot at the federal government’s high immigration policy and its impact on aggregate demand.
The RBA concluded that “policy is currently restrictive and working broadly as anticipated”. However, it noted that the outlook is highly uncertain.
The Minutes reaffirmed that “sustainably returning inflation to target within a reasonable timeframe remains the Board’s highest priority”.
“While headline inflation will decline for a time, underlying inflation is more indicative of inflation momentum, and it remains too high”.
As a result, “policy will need to be sufficiently restrictive until the Board is confident that inflation is moving sustainably towards the target range”.
This commentary should be read as a hawkish hold and extinguishes hopes of rate cuts arriving this year.
The Albanese government must be sweating bullets as it needs the RBA to cut rates before it heads to the polls before end-May 2025.
