The RBA has steady pricing pressures and recovering demand, citing inflation risks, global uncertainty and harsh labor markets to stabilize stable rates.
At the final monetary policy meeting before the federal election, the Reserve Bank of Australia (RBA) is trying not to change interest rates despite the government’s desire for further cuts.
The board cited global uncertainty and the need for trust in inflation returning to target range before adjusting policies.
“The board must be sure this progress will continue, which will allow inflation to return to the midpoint of the target band on a sustainable basis. Therefore, we need to be careful about our outlook,” the RBA said.
The latest consumer price index (CPI) data showed inflation slowed to 2.4% from 2.5% in January, showing the longest decline since its peak in 2022.
As inflation continues to ease, the RBA noted that households’ financial stress has declined and actual household incomes have been taken up.
However, businesses still struggle to pass costs due to low demand, and the labor market situation continues to challenge employers.
Related Stories
The RBA’s latest decision follows interest rate cuts in February, the first since November 2020, with the cash rate being reduced to 4.10% to 4.35%.
The movement reflects easing easing and a suppressed domestic demand environment.
Nevertheless, the board remains cautious, indicating that future rate decisions will depend on evolving economic conditions and risks.
Global factors are considering policy decisions
The RBA remains wary of the effects of US tariffs and geopolitical tensions, particularly global economic development. That comes when more US tariffs come into effect.
“The recent US tariff announcements have affected global trust, and widening tariffs and retaliation measures could amplify economic uncertainty,” the board warned.
Such developments can weaken global economic activity if businesses and households slow down their spending.
Some central banks eased monetary policy in response to lower inflation, but global risks have encouraged a more cautious approach.
With inflation returning to target as a prioritized RBA, the bank has reiterated its readiness to accommodate international changes that could have a significant impact on Australia’s inflation and economic stability.
Labor market and domestic uncertainty
Despite the decline in employment in February, the RBA highlighted that the decline in labor shortage remains low.
Wage pressures have eased slightly, but productivity growth is still slowing, keeping units labor costs high. The board warned of uncertainty in household consumption and domestic economic activity.
“We expect an increase in household consumption to increase, but if it remains weak, it could lead to slower production growth than expected, leading to a sharper degradation of the labour market,” the RBA said.
Conversely, stronger labour markets can push inflation higher and complicate monetary policy.
The board also acknowledged the risk of the impact of monetary policy delays, saying that decisions on pricing for companies and wage movements in response to economic conditions remain unpredictable.
