Contributor: Troy Hampton, Financial Adviser
Prior to the RBA meeting in July ’23 economists were almost evenly divided between those calling for a rate rise and those expecting a hold. Following their July board meeting, RBA released that they would be holding rates at 4.1%.
The reason for the hold is due to the monthly decline in the recently released May CPI figure of 5.6%, a fall from 6.9% from April’s release. The RBA noted the 4% increase in the cash rate from May 2022, which had contributed to significant cost-of-living pressures for some households. There does however seem to be a differential between households with substantial savings and others who are experiencing stress from higher mortgage repayments. This makes the RBA’s role increasingly more complicated as higher cash rates may only be impacting a portion of household spending.
The RBA board reiterated their commitment to returning inflation to the 2-3 percent target band within a reasonable timeframe. Although what is a “reasonable timeframe” remains vague, the RBA is clearly concerned about the effects of lasting high inflation on savings, wages and business planning suggesting that a lengthy delay could result in even higher interest rates and an unacceptably high rate of unemployment.
The RBA board is very clear that the decision to hold rates will give them more time to assess the impact of the continued monetary policy tightening on CPI but should not be considered the end of the tightening cycle. This will however depend on the evolution of economic performance and the continued release of inflation figures.
If you have any questions on inflation or interest rates, please contact your adviser.
