Published On: December 5th, 2023
Confirming the market expectations, the Reserve Bank of Australia (“RBA”) released an announcement today stating that the interest rate will remain unchanged at 4.35%. This announcement relieved millions of Australians who have witnessed the interest rate rise multiple times in 2023. Before this, the RBA Board had raised the interest rate from 4.10% to 4.35% by 25 basis points in November after a hiatus of four meetings. Additionally, the Board retained the interest rate paid on Exchange Settlement balances at 4.25%.
Key highlights of the December monetary policy meeting
Michele Bullock, the Governor of the Reserve Bank of Australia, put forth the monetary policy statement following the December monetary policy meeting concluded by the Board earlier today. One of the key highlights of the meeting was a decision to assess the targets and risks for examining the tightening of the monetary policy to tackle inflation. Such a decision is significant on the background of the fluctuation of the core inflation, the trimmed mean, from 5.4% in September to 5.3% in October.
She also stated that while the outlook for household consumption presented uncertainty, the monthly Consumer Price Index (CPI) for October showed indications of moderation. In October, it increased at an annual pace of 4.9%, a slower rate than the previous rise of 2.6%. It was also lower than the expected acceleration of 5.2%.
The Reserve Bank of Australia Board reiterated its stand to return the inflation to the 2 to 3% target and monitor the labour market conditions. It took note of the lags in implementing the monetary policy in domestic markets and commented on the need to scrutinise the related uncertainties. In her statement, Michele Bullock disclosed that despite lower-than-expected growth, the Australian economy exhibited stronger growth over the first half of 2023.
Stressing the need for higher interest rates, Michele Bullock articulated the role of the Reserve Bank of Australia in sustainably balancing the aggregate supply and demand. She further stated that a steady interest rate decided by the Board is expected to provide sufficient time to analyse the effect of the interest rate surge on the inflation, demand, and labour market.
In view of this landmark decision by the Reserve Bank of Australia, it remains to be seen if this move works in the favour of Australians who are struggling with cash repayments. Nevertheless, a pre-Christmas stay has ensured that the RBA and the Australian consumers receive a much-needed reprieve to assess and plan for a better financial future in the coming year.
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