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Economics update | 7 July 2023
07 Jul 2023
Reserve Bank pauses, though high inflation still a concern
Contrary to market expectations, the Reserve Bank this week left the cash rate unchanged at 4.1 per cent. With 12 interest rate increases since May 2022, the interest rate continues to be the highest in 11 years. This pause follows consumer price index figures released last month which indicated that inflation had fallen to 5.6 per cent in May, though still remaining above the RBA’s target range of 2-3 per cent.
The statement by governor Philip Lowe issued after the meeting noted that inflation in Australia has passed its peak and has started to slow down. Previous rate increases and cost of living pressures are now leading to a substantial slowdown in household spending which is expected to weaken the economy further. However, strong employment growth coupled with wage increases is likely to lead to further tightening of monetary policy.
The pause gives the Reserve Bank time to assess the state of the economy. However, it has not ruled out further rate rises, noting they may be needed to ensure inflation returns to the target range as quickly as possible.
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