The Reserve Bank of Australia (RBA) has paused its interest rate hiking cycle for the third month, effectively maintaining the official cash rate at 4.1 percent.
Since May 2022, the RBA has embarked on an aggressive monetary tightening policy to curb skyrocketing inflation that came close to eight percent in December 2022.
While the central bank noted that inflation had passed its peak and dropped further in June, it said consumer price growth was still much higher than its target band and would remain so for some time.
The main driver of the drop in June’s CPI was a sharp fall in goods inflation after two years of solid price increases.
Causes to Pause
Luke Hartigan from The University of Sydney’s School of Economics believed the recent downward inflation movements were the main reason behind the RBA’s decision.“Further, the economy is slowing, and the labour market is probably reaching a turning point,” he told The Epoch Times.
“These outcomes are the result of all the previous rate hikes, which have taken time to have an effect.”
The RBA also acknowledged that the Australian economy was going through a period of “below-trend” growth and would continue to do so for a while.
At the same time, the bank said the labour market still remained tight, while there were significant uncertainties about the outlook of inflation and the economy.
“Services price inflation has been surprisingly persistent overseas, and the same could occur in Australia,” RBA Governor Philip Lowe said.
“The outlook for household consumption also 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.”
Amid the uncertainties, the RBA expressed its determination to bring inflation down to the two to three percent target band, saying further interest rate hikes might be needed.
An End to Interest Rate Hikes?
Despite the uncertain economic outlook, many economists believe the RBA’s latest decision signals an end to the period of rising interest rates.“Given the current state of the economy, I do believe this is probably the end of the current tightening cycle,” Mr. Hartigan told The Epoch Times.
“There has already been a significant amount of tightening in monetary policy (400 basis points or four percentage points), and it appears to be having an impact on demand in the economy.
“Further, I would expect the RBA to keep the cash rate at its current level for a little while though to make sure that inflation has truly passed the peak.”
Mr. Hartigan also noted that the RBA could consider cutting interest rates if the Chinese economy experienced a significant slowdown in the near term, which would impact the Australian economy.
Meanwhile, Graham Cooke, the head of consumer research at the financial comparison website Finder, said Australians would likely see another interest rate pause in October.
“Mortgage holders can take a breather from the relentless pressure of the back-to-back interest rate hikes,” he said.
“We may even see the rate stagnate until the end of the year.”
