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SKY UPDATE | RBA INTEREST RATE DECISION

20 June 2024 

The Reserve Bank of Australia (RBA) has decided to leave the cash rate target unchanged at 4.35% following its latest board meeting on the 18th of June.  

Inflation: A Persistent Challenge 

Inflation remains a key concern for the RBA.  

Whilst there has been a substantial reduction since its peak in 2022, inflation is still stubbornly above the 2-3% target range. 

Economic Dynamics: Demand, Costs, and Consumption 

The broader economic data paints a picture of continuing excess demand coupled with elevated domestic cost pressures.  

The labour market, while easing slightly, remains tighter than is consistent with sustained full employment and inflation control.  

Wages growth, although having peaked, remains higher than what can be sustained given trend productivity growth. 

Recent data revisions suggest that consumption has been stronger than previously thought over the past year. However, output growth has been subdued, and consumption per capita is on the decline as households curb discretionary spending due to the pressures of inflation on real incomes. 

A Clouded Outlook 

The economic outlook remains very unclear with several domestic and international factors feeding uncertainty. 

The central forecasts published in May indicated that inflation would return to the target range in the second half of 2025 and to the midpoint by 2026.  

Data shows that real disposable incomes have stabilized and are expected to grow later this year, buoyed by lower inflation and tax cuts. Increased wealth from rising housing prices is also expected to support consumption growth.  

However, there is a risk that household consumption might grow more slowly than anticipated, which could lead to continued subdued output growth and a deteriorating labour market. 

Internationally, there are mixed signals. While output growth in most advanced economies appears to have bottomed out, and there are positive developments in the US and Chinese economies, geopolitical uncertainties, such as the conflicts in the Middle East and Ukraine, pose significant risks. These factors could disrupt supply chains and impact global economic stability. 

RBA’s Commitment to Inflation Control 

The RBA have once again reminded us that they are focussed on returning inflation to the target range.  

The RBA is predicting that it will be some time before inflation is sustainably within the target range and are not ruling out further interest rate hikes. 

The RBA’s decision to hold the cash rate steady reflects a cautious approach in the face of persistent inflation and a highly uncertain economic landscape.  

In these uncertain times, reviewing your lending rates is more important than ever. Sky Accountants is here to help.  Get in touch if you need help to review your lending arrangements or need help to find a better deal.  

Sky Accountants Ballarat

Phone: 03 5332 8855

Office Address: 902 Howitt Street, Wendouree, Victoria 3355, Australia

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Office Address: 45 Hamilton Street, Gisborne, Victoria 3437, Australia

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