RBA maintains interest rates at 12-year high amid economic uncertainty

By Glenn Dyer | More Articles by Glenn Dyer

No change in interest rates from the Reserve Bank, and none are expected for a while after the latest two-day monetary policy meeting of the central bank.

In a move that was widely anticipated by the market, the RBA kept the cash rate at a 12-year high of 4.35%.

The post-meeting statement had nothing to suggest interest rates will change any time soon—a reduction is possible, but an increase is a very remote chance.

It was the fifth meeting in a row where the RBA has sat on its hands while threatening to do everything to control recalcitrant inflation.

"The economic outlook remains uncertain, and recent data have demonstrated that the process of returning inflation to target is unlikely to be smooth," read the post-meeting statement from the bank.

Headline consumer price inflation accelerated from 3.4% in December to 3.6% in April, according to the Australian Bureau of Statistics. The May jobs data showed the unemployment rate eased to 4% from 4.1%, and thousands more jobs were created than expected.

"Broader data indicate continuing excess demand in the economy, coupled with elevated domestic cost pressures, for both labour and non-labour inputs.

"Conditions in the labour market eased further over the past month but remain tighter than is consistent with sustained full employment and inflation at target. Wages growth appears to have peaked but is still above the level that can be sustained given trend productivity growth.

"Recent budget outcomes may also have an impact on demand, although federal and state energy rebates will temporarily reduce headline inflation. The persistence of services price inflation is a key uncertainty. Also, although growth in unit labour costs has eased, it remains high. Productivity growth needs to pick up in a sustained way if inflation is to continue to decline.

"The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain, and the Board is not ruling anything in or out. The Board will rely upon the data and the evolving assessment of risks," the statement said.

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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