The Reserve Bank has chosen to keep interest rates steady in its first meeting of the year due to a larger-than-expected drop in 2023 year-end inflation. This maintains the cash rate at 4.35 percent, as anticipated, with few analysts predicting a rate hike.
More economists now foresee potential rate cuts later in the year as inflation continues to ease. In the December quarter, inflation was 4.1 percent, down from 7.8 percent a year ago.
The RBA board noted that while inflation had subsided to 4.1 percent, goods price inflation fell faster than expected, but services inflation was gradually moderating. Their central forecast aims for inflation to return to the 2 to 3 percent target range by 2025 and reach the midpoint in 2026.
The RBA cautioned about uncertainty regarding the Chinese economy, conflicts in Ukraine and the Middle East, and their potential impact on Australia. They did not rule out the possibility of future interest rate increases, closely monitoring global economic developments, domestic demand, inflation, and the labor market.
Anneke Thompson, Chief Economist at CreditorWatch, observed that although December’s 4.1 percent inflation figure was still too high for an immediate rate cut, indications pointed to a potential cash rate reduction around mid-year, given the declining inflation trend. Major foreign economies are also contemplating rate reductions.
