The Reserve Bank of Australia (RBA) kept the cash rate target unchanged at 4.35% on Tuesday, citing ongoing concerns over inflation.
While headline inflation has eased significantly since its peak in 2022, underlying inflation remains elevated at around 3.5%, still above the central bank’s target midpoint of 2.5%.
Policymakers highlighted that higher interest rates have played a crucial role in reducing inflation by aligning aggregate demand with supply. However, the economic outlook remains uncertain, with recent data on activity showing mixed results.
Growth in Australia’s gross domestic product (GDP) slowed to just 0.8% over the past year, marking the weakest pace outside of the COVID-19 pandemic since the early 1990s.
Meanwhile, labour market indicators, while tight, have shown gradual easing. The unemployment rate rose to 4.1% in October from 3.5% in late 2022, though employment has grown strongly over recent months, and participation rates remain near record highs.
Board members also noted that wage pressures have eased more than expected, with the wage price index showing annual growth of 3.5% in the September quarter, down from the previous quarter. However, weak labour productivity growth continues to weigh on economic performance.
The RBA noted that “The Board’s assessment is that monetary policy remains restrictive and is working as anticipated. Some of the upside risks to inflation appear to have eased and while the level of aggregate demand still appears to be above the economy’s supply capacity, that gap continues to close.”