The minutes of the latest meeting of the Central Bank of Australia (RBA) were published today. On the last meeting, the RBA decided to leave the cash rate target unchanged at 4.35%, and the interest rate on Exchange Settlement balances at 4.25%. This decision followed a debate among members about whether to raise the rate further or maintain it. The argument for increasing the rate centered on the need for more time to bring inflation back to target and achieve full employment in the labor market. Conversely, the case for keeping the rate unchanged was based on recent data indicating that inflation moderation and labor market conditions might already be aligning with full employment, although this was considered unlikely.
The RBA noted that inflation in Australia had moderated, with both headline and underlying inflation lower in the December quarter of 2023 than expected. However, services price inflation, reflecting domestic economic conditions, remained high. High inflation, higher taxes, and tighter monetary policy have led to a noticeable slowdown in aggregate demand over 2023.
In terms of projections, the RBA expects that overall demand growth will remain subdued in the near term, influenced by still higher inflation and previous interest rate increases impacting household consumption. The near-term outlook for GDP growth has been revised down slightly, mainly due to a weaker outlook for consumer spending. This is attributed to a decline in real incomes over recent years. However, as inflation moderates and real incomes start to rise from 2024, consumption growth is expected to gradually return to its pre-pandemic average by 2025. The RBA also predicts that inflation will return to the target range of 2–3% in 2025 and reach the midpoint in 2026.
Following the publication, we have seen little change on AUD. The Australian dollar is depreciating slightly.
Source: xStation 5
