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Interest rates unchanged but economic outlook ‘highly uncertain’

The Reserve Bank has left interest rates at 4.35 per cent in February after inflation cooled in the December quarter.

Feb 06, 2024, updated Feb 06, 2024
Photo: Paul Miller/AAP

Photo: Paul Miller/AAP

For the second period in a row, the Reserve Bank has kept the cash rate unchanged amid cooling interest rates, but the RBA said the economic outlook for Australia was “highly uncertain”.

It expects inflation to continue falling, but it still “remains high at 4.1 per cent”, the RBA said.

The RBA last hiked interest rates in November by 25 basis points to 4.35 per cent, which added nearly $80 extra a month to repayments for a $500,000 mortgage.

Today, the RBA said higher interest rates were “working to establish a more sustainable balance between aggregate demand and supply in the economy”, and that “conditions in the labour market continue to ease gradually”.

“Although they remain tighter than is consistent with sustained full employment and inflation at target,” the RBA board said.

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“Wages growth has picked up but is not expected to increase much further and remains consistent with the inflation target, on the assumption that productivity growth increases to around its long-run average.

“Inflation is still weighing on people’s real incomes and household consumption growth is weak, as is dwelling investment.”

Central forecasts predict inflation to return to the RBA’s target range of 2 to 3 per cent in 2025, while employment was “expected to continue to grow modestly”.

“Returning inflation to target within a reasonable timeframe remains the board’s highest priority,” said the RBA board led by RBA Governor Michele Bullock.

“The Board needs to be confident that inflation is moving sustainably towards the target range. To date, medium-term inflation expectations have been consistent with the inflation target and it is important that this remains the case.”

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