The Reserve Bank of Australia (RBA) kept interest rates steady at 4.35% for the 12th month in a row, prioritising inflation control despite a downgraded economic outlook.
Some economists had anticipated a more significant change in the RBA’s messaging to indicate advancements in inflation management and the updated predictions.
“While headline inflation has declined substantially and will remain lower for a time, underlying inflation is more indicative of inflation momentum, and it remains too high,” the RBA board said in a statement.
Adam Boyton, the head of Australian economics at ANZ, expressed his expectation for “more of a step towards neutral,” particularly since the November monetary policy statement included reduced forecasts for underlying inflation, wages, and economic growth.
“While most of these are small changes, the forecasts do appear to have evolved in a more neutral direction than the rhetoric,” Boyton said.
AMP’s chief economist, Shane Oliver, noted a more dovish tone, stating, “It continues to note that underlying inflation is still too high, and the labour market remains tight,” he said.
Treasurer Jim Chalmers noted that it has been over a year since interest rates were increased, highlighting their efforts to curb inflation. He also mentioned that the RBA’s updated forecasts indicate “welcome and encouraging progress in the battle against inflation.”
“What this shows is that we’ve been able to fight inflation without ignoring risks to growth and without sacrificing the gains that we have made in the labour market,” Mr. Chalmers stated.
Meanwhile, Shadow Treasurer Angus Taylor remarked that Dr. Chalmers was overemphasising the forecasts.
“They have not solved the underlying problem here; the government is way short of solving that underlying problem.”
“And of course, core inflation is not expected to get back to the target for two years, for two years, so much more pain to go in terms of price increases,” he said.
Sally McManus, secretary of the Australian Council of Trade Unions, stated that the inflation issue stemmed from temporary shortages, global supply chain problems, and excessive profit-taking rather than wages, “yet workers must face another round of interest rate uncertainty.”
McManus urges the RBA to cut rates at its upcoming December meeting, blaming high rates for slowing Australia’s post-pandemic recovery.