As the Reserve Bank of Australia (RBA) prepares for its upcoming board meeting, all signs suggest that the central bank will maintain its current interest rate of 4.35%, despite the recent rate cut by the United States Federal Reserve.
Since late 2023, the RBA has held firm on its rate in an effort to control inflation, signalling that further rate cuts are unlikely in the short term.
US Fed’s 50 Basis Point Cut
Last week, the US Federal Reserve implemented a significant 50 basis point interest rate cut, a move seen as an attempt to provide economic relief amid slowing global growth. While countries like Canada and New Zealand have also taken similar steps, the RBA has resisted following suit, maintaining that Australia is in a different economic position.
Australia’s Inflation Battle
Australia’s inflation fight has been slower than some other nations, with the RBA remaining cautious about premature cuts. The central bank has consistently reiterated that another hike is still on the table if inflation doesn’t ease as expected.
Independent economist Saul Eslake expressed that, while other countries have implemented more aggressive rate hikes and are now stepping back, the RBA’s strategy has been comparatively measured.
“They all put their rates up a lot more and earlier than the RBA did,” Eslake noted.
With Australian tax cuts already boosting household incomes by the equivalent of 50 basis points in rate cuts, Eslake argued that there is no immediate need for the RBA to intervene further. He predicted that any reduction in the interest rate wouldn’t occur until February 2025 at the earliest.
Upcoming Data Crucial for RBA
As the RBA board meets, they will be closely watching several upcoming economic indicators, including inflation data set to be released by the Australian Bureau of Statistics (ABS). Westpac economists have predicted that the consumer price index (CPI) could show a drop of 0.2% in August, potentially bringing annual inflation down to 2.7%, compared to 3.5% in July.
This would bring inflation closer to the RBA’s target range of 2-3%, but the bank has indicated that it plans to focus on underlying price pressures rather than temporary cost-of-living relief measures like government energy rebates.
Other key data points, such as job vacancies and household wealth reports, are due later in the week and will provide a clearer picture of the country’s economic health. The RBA will also release its own deep dive into global and domestic financial stability by the end of the week, offering further insights into its future policy direction.
Market Reactions and Global Context
While the Australian stock market has seen a boost, with the S&P/ASX200 index rising 17.6 points to close at a record high of 8,209.5, the global financial scene remains volatile. In the US, markets were steady following the Fed’s interest rate cut, with the Dow Jones Industrial Average inching up by 38.17 points to 42,063.36.
Despite this, Australian mortgage holders should not expect any immediate relief. Governor Michele Bullock is set to hold a press conference following the RBA’s decision on Tuesday afternoon, where more details on the bank’s outlook will be shared.
Future Outlook
While other central banks around the world begin to relax monetary policies, Australia’s RBA remains firmly committed to stabilizing inflation. With inflation showing signs of moderation, the board will likely hold the line for now, choosing to evaluate the situation further before making any significant moves. As the Australian economy navigates post-pandemic recovery alongside global economic shifts, the RBA’s cautious approach is designed to ensure sustainable growth without risking a resurgence in inflation.
For mortgage holders and investors, the wait for rate cuts may extend into 2025, but much will depend on how the economy evolves over the coming months.
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