Tuesday, June 25, 2024

Interest rates on hold

The Reserve Bank of Australia (RBA) has left the cash rate target unchanged at 4.35%.

According to the central bank, inflation continued to ease in the December quarter.

“Despite this progress, inflation remains high at 4.1%,” it says.

“While there are encouraging signs, the economic outlook is uncertain, and the Board remains highly attentive to inflation risks. The central forecasts are for inflation to return to the target range of 2-3% in 2025, and to the midpoint in 2026.”

Commenting on the RBA’s decision, CreditorWatch Chief Economist Anneke Thompson says at 4.1%, the December inflation figure is still too high for the board to consider a rate cut today, but “all indicators point to inflation falling faster than last year’s forecasts, and this may well result in a decrease to the cash rate sometime in the middle of the year, rather than the latter half”.

“Inflation is also falling rapidly in major overseas economies,” she says, “and central banks in the US, UK and Europe are likely to consider cuts to their interest rates over the next few months.”

Today’s decision will give the retail industry a sense of “cautious optimism” after subdued retail trade performance in December, according to Australian Retailers Association CEO Paul Zahra.

“We’re pleased to see the RBA provide some much-needed reprieve for consumers and businesses to set the tone for the beginning of 2024,” he says.

“At a time of immense financial pressure and hardship for most, avoiding another cash rate increase will positively impact spending and retail operations.

“December’s retail performance was subdued, with cost-of-living pressures taking their toll and many shoppers ticking off their Christmas gift lists in November during the Black Friday sales.

“As a result, retailers will be looking to regain sales momentum in the months ahead.”

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