RBA Expected to Maintain Current Interest Rate Amid Economic Jitters

1

According to Gareth Aird, Head of Australian Economics at Commonwealth Bank, the rate is likely to stay the same for now, but the RBA’s stance might still be open to future changes based on evolving economic data. "We expect no changes to the cash rate but the board will likely state that it remains vigilant on potential inflationary pressures," Aird predicts.

Should Aird's projections hold true, the RBA would keep the rate at a 12-year high, aiming to bring inflation down to its 2-3% target by mid-2026.

"The likelihood of a rate change is minimal," Aird noted, stressing that RBA Governor Michele Bullock usually echoes the same sentiment about remaining alert to inflation risks while acknowledging GDP growth uncertainties.

Relief washed over Australians on Wednesday when the Consumer Price Index (CPI) for June revealed a slight increase from 3.6% to 3.8%, which, while still higher than RBA's goal, aligns with their forecasts. More crucially, the core inflation rate—or the trimmed mean CPI—dipped slightly from 4% to 3.9%.

The quarterly August Statement of Monetary Policy, to be released concurrently with the cash rate announcement, includes the federal government’s $300 energy rebate. Stephen Wu of CommBank suggests this could potentially lead the RBA to revise headline inflation figures downward, while predictions for the underlying CPI would likely remain static.

"The statement will probably reaffirm that the path for interest rates remains uncertain," Wu wrote, acknowledging any favorable inflation data would still keep the existing narrative intact and deter immediate changes in policy.

This cautionary approach persists despite predictions from some economists about a possible rate decrease before Christmas. Financial services website RateCity has advised borrowers to acquaint themselves with the prospect of another rate hike, given the stubborn nature of inflation.

RateCity’s research director, Sally Tindall, highlighted that even a modest rise of 25 basis points would add approximately $75 to monthly payments on a $500,000 mortgage, accumulating to a total of $1,285 in increased payments since May 2022.

For instance, those with a $750,000 mortgage would face monthly increases of around $112, pushing the total rise in payments to $1,928 during the same period.

"This scenario aligns well within the RBA’s planned timeline but also underscores the urgency should inflation rates not decline soon," Tindall said, urging vigilance and preparedness among borrowers.

Treasurer Jim Chalmers has avoided making specific predictions ahead of Tuesday’s RBA decision, despite acknowledging that the recent inflation readings showed encouraging signs amid continuing cost-of-living challenges.

Shadow Treasurer Angus Taylor, meanwhile, has criticized the government’s spending habits, blaming increased government expenditure for feeding inflation. "The government must complement the RBA’s efforts by controlling fiscal policy, and their failure to do so leaves Australia lagging behind other G10 countries," he said.

For ongoing updates, you can visit the original publication on TheIntercept.com.

Published:Monday, 5th Aug 2024
Source: Paige Estritori

Share this news item:

Finance News

Demand for Stronger Anti-Fraud Measures Rises 20 Sep 2024: Paige Estritori Victims of scams are increasingly insisting on more stringent regulations, similar to those seen in the UK, that compel banks to compensate for fraudulent losses. The call for rapid implementation of proposed laws is growing louder. - read more

Mortgage Crisis: 40% of Australian Homeowners Under Pressure 09 Sep 2024: Paige Estritori A recent study has uncovered that an alarming number of Australian households are grappling with mortgage burdens, as over 1.4 million families find themselves in financial distress. This amounts to more than 40% of current home loan holders, according to new data from Finder, a consumer finance comparison service. - read more

Contactless Revolution: The Decline of Cash Among Tradies 07 Sep 2024: Paige Estritori Australia is embracing a cashless economy, a trend that is significantly reshaping how tradespeople, or 'tradies,' handle transactions in their day-to-day operations. - read more

RBA Remains Cautious Despite Economic Slowdown 06 Sep 2024: Paige Estritori Borrowers expecting a reduction in interest rates due to sluggish economic growth might have to wait longer, as the Reserve Bank of Australia (RBA) prioritizes inflation management. - read more