Reserve Bank of Australia keeps rates on hold, cites China as a risk

Reserve Bank of Australia governor Philip Lowe.

The Reserve Bank of Australia (RBA) has kept its cash target rate unchanged at 4.10 per cent, as expected, but has left the door open for further rate hikes.

Official Aussie interest rates have been increased by four percentage points since May last year, but have been on hold for the last three months.

“The higher interest rates are working to establish a more sustainable balance between supply and demand in the economy and will continue to do so,” the bank said.

“In light of this and the uncertainty surrounding the economic outlook, the board again decided to hold interest rates steady this month,” the bank said.

This would provide further time to assess the impact of the increase in interest rates to date and the economic outlook, it said.

Inflation in Australia has passed its peak, and the monthly CPI indicator for July showed a further decline.

“But inflation is still too high and will remain so for some time yet. While goods price inflation has eased, the prices of many services are rising briskly,” it said.

The Australian economy was experiencing a period of below-trend growth, and this was expected to continue for a while.

“High inflation is weighing on people’s real incomes and household consumption growth is weak, as is dwelling investment.

“Notwithstanding this, conditions in the labour market remain tight, although they have eased a little.”

The RBA said Australia’s unemployment rate was expected to rise gradually to around 4.5 per cent late next year.

“Wages growth has picked up over the past year, but is still consistent with the inflation target, provided that productivity growth picks up,” the bank said.

Globally, there was increased uncertainty around the outlook for the Chinese economy due to ongoing stresses in the property market there.

“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will continue to depend upon the data and the evolving assessment of risks,” the bank said.