Investing.com - The Reserve Bank of Australia (RBA) Board, led by Governor and Chair Michele Bullock, kept the cash rate unchanged in the face of economic uncertainties and inflationary pressures. The meeting, attended by eminent members including Deputy Governor Andrew Hauser and others, delved into the current domestic and international economic developments.
The Board observed that growth had slowed more than expected during the December quarter. While strong business investment and public spending supported aggregate demand in 2023, officials expressed concern over the weak household consumption growth influenced by high inflation, increasing interest rates, and tax payments.
A significant discussion point was the robust growth in housing demand against the constrained supply, leading to escalating prices and rents. This was attributed to high population growth, pandemic-induced preference for larger living spaces, and supply constraints due to capacity limitations and rising construction costs.
Policymakers noted that labour market conditions had eased, with slowing output growth leading to a slowdown in labour demand. However, they also observed the labour market remained tighter than what is consistent with sustained full employment and inflation at target.
Turning to international economic developments, the Board highlighted that inflation had been moderating in many advanced economies. However, they also noted that inflation remained uneven across components, with energy and goods prices inflation easing, but housing and core services inflation remaining high compared to pre-pandemic rates.
Regarding financial conditions, it was noted that expectations for the paths of central bank policy rates in advanced economies had risen slightly since the previous meeting. This was due to some stronger-than-expected economic data and statements by central bank officials emphasizing the need for further evidence that inflation would sustainably return to targets before central banks started reducing policy rates.
In the context of monetary policy implementation, officials discussed options for the future system that the Bank could use to implement monetary policy. They concluded that the provision of ample reserves through full-allotment auctions was likely to be the best option moving forward.
The Board also discussed the Bank’s regular half-yearly assessment of financial stability risks, observing that pressures from high inflation and the sharp tightening in monetary policy had weighed on the financial position of many households and businesses globally.
In light of these assessments, policymakers agreed that it was appropriate to leave the cash rate target unchanged at this meeting. They agreed that the data received since the previous meeting had been broadly as expected and did not materially alter the outlook for output growth and inflation.
The Board decided to leave the cash rate target unchanged at 4.35%, and the interest rate on Exchange Settlement balances unchanged at 4.25%.