The Reserve Bank of Australia’s latest decision explained

Introduction

You may have recently heard the Reserve Bank of Australia (RBA) made a decision regarding the nation’s monetary policy this week.

The RBA makes a choice as to raise, lower, or keep the nation’s interest rate the same once a month.

The last year and a half have seen interest rates skyrocket as the RBA tries to tackle rising inflation.

However, they have been – ever so slowly – decreasing in the last few months.

Thus, many Australians were keen to hear the RBA Board’s verdict yesterday.

Body

On Tuesday, the Reserve Bank of Australia’s board announced their intention to keep Australia’s cash rate target as it is.

The cash rate will remain at 4.35 per cent, while the Exchange Settlement interest payment amount is to stay at a rate of 4.5 per cent for now, according to a media release from the RBA.

Unfortunately, currently inflation is still stubbornly higher than what the RBA is aiming for, though it has gone down significantly over the last two years.

In 2022 inflation hit a peak, but thanks to the raising of interest rates supply and demand is slowly reaching an equilibrium.

However, this decrease is slackening, and thus it will be a while before we reach the desired range.

“The pace of decline has slowed in the most recent data, with inflation still some way above the midpoint of the 2–3 per cent target range,” stated the RBA.

It should be noted that the RBA have stated that it seems wage growth has peaked higher than a sustainable level.

Meanwhile, it appears Australian households have been feeling the effects of inflation and limiting any optional spending.

Housing prices, however, have boosted the prosperity of many Australians.

According to the RBA, the future is not clear yet, and getting to the desired rate will be tough.

“While recent data have been mixed, they have reinforced the need to remain vigilant to upside risks to inflation,” stated the RBA.

“The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain.”

While inflation will – eventually – go down, it is clear that this process will be a lot slower than was predicted.

At the moment, the unstable global situation – marked by conflict, war, and crises – could potentially affect supply chains.

“Output growth in most advanced economies appears to have troughed,” stated the RBA.

“There has been improvement in the outlook for the Chinese and US economies, and many commodity prices have picked up.

“Some central banks have eased policy, although they remain alert to the risk of persistent inflation.” 

The world stage will be one for the RBA – and economists – to watch carefully.

At the end of the day, the RBA Board is desperately trying to get inflation down in a satisfactory amount of time, and has said that it “will do what is necessary” in order to accomplish this.

However, it has also stated that it will not be “ruling anything in or out”.

Key points

Below are a number of key points to keep in mind until the RBA announces next month’s decision.

• This month the interest rate will not increase – but it will not decrease either.
• We are still a long way from the target rate, so make sure you are confident that you can handle any increases or decreases to the current rate.
• The RBA are striving to bring down inflation, and eventually get interest rates within a reasonable range.

If you are worried about how this month’s announcement will impact your home loan, get in touch with your mortgage broker for advice.

Conclusion

Ultimately, it appears that interest rates will not be reaching the desired target anytime soon.

As a consequence, it is important that you and your family are ready for anything – be it rate rises, rate decreases, or rates simply staying at the current amount.

If you, or someone you know, would like to find out more about this topic, please reach out to the supportive team at AA Finance Solutions.