The RBA’s latest analysis indicates that underlying inflation, while reduced, remains significantly above the target mid-point of 2.5 per cent, currently sitting around 3.5 per cent. Inflation is not expected to align sustainably with the target until 2026, a forecast that the RBA Board is cautiously optimistic about as it monitors declining inflationary pressures, the Board said in a statement.
Reserve Bank of Australia has decided to keep the cash rate at 4.35 per cent and the rate on exchange settlement balances at 4.25 per cent amid ongoing high inflation levels.
Despite a drop from its peak in 2022, inflation remains above the desired 2.5 per cent target, currently at around 3.5 per cent, with expectations to reach the target only by 2026.
Economic indicators present a mixed picture, with recent data suggesting softer economic activity than anticipated. The September national accounts revealed a mere 0.8 per cent growth in the past year, marking the slowest expansion since the early 1990s, excluding the pandemic period. Consumer spending continues to be affected by past reductions in real disposable income and tight financial conditions, particularly impacting discretionary spending.
Employment conditions have shown some resilience, with strong job growth and high participation rates, although the unemployment rate has seen a slight increase from last year. Wage pressures have also eased more than initially expected, yet labour productivity remains a concern.
The RBA Board asserts that the restrictive monetary policy is performing as expected, helping to narrow the gap between demand and the economy’s supply capacity. It remains vigilant, acknowledging the potential for slower than anticipated consumption recovery which could further dampen economic growth and exacerbate labour market conditions, the statement added.
Internationally, the landscape is also uncertain, with most central banks easing their monetary policies as inflation trends towards targets. However, the global economic outlook is shadowed by ongoing geopolitical uncertainties.
Fibre2Fashion News Desk (KD)
