Sydney, Nov 7: In a move to address stubbornly high inflation, Australia’s central bank, the Reserve Bank of Australia, has announced an increase in the cash rate target by 25 basis points, bringing it to 4.35 percent.
Additionally, the interest rate paid on Exchange Settlement balances has also been raised by 25 basis points, reaching 4.25 percent.
Inflation in Australia, though past its peak, continues to be a concern due to its persistence, surpassing expectations set a few months ago. Recent data on the Consumer Price Index (CPI) reveals a continued rise in the prices of many services, offsetting the easing of goods price inflation.
While the central forecast anticipates a decline in CPI inflation, the progress towards the target range of 2 to 3 percent appears to be slower than initially projected. It is now expected that CPI inflation will hover around 3½ percent by the end of 2024 and at the upper limit of the target range by the end of 2025.
The decision to raise interest rates is driven by the central bank’s determination to expedite the return of inflation to the desired target within a reasonable timeframe.
The central bank had previously maintained steady interest rates since June, following a series of increases over the past year.
These hikes were aimed at achieving a sustainable balance between supply and demand within the economy.
Despite a period of below-trend economic growth, the economy has displayed resilience in the first half of the year. Underlying inflation has outpaced expectations, conditions in the labour market, though easing, remain tight, and housing prices are on the rise across the country.
However, high inflation is taking a toll on real incomes, leading to weak household consumption growth and dwelling investment.
The outlook suggests below-trend economic growth, slower employment growth compared to the labour force, and a gradual increase in the unemployment rate to approximately 4¼ percent.
The central bank is focused on restoring inflation to target, highlighting that high inflation adversely affects savings, household budgets, business planning, investment, and income equality.
Medium-term inflation expectations have remained aligned with the inflation target so far, and the central bank aims to sustain this consistency.
Despite these measures, significant uncertainties persist in the economic outlook, particularly regarding the persistence of service price inflation, monetary policy’s effectiveness, and firms’ pricing and wage responses amid slowing economic growth.
The future of household consumption remains uncertain, as households grapple with financial constraints and varying impacts from rising housing prices. Global uncertainty further compounds the outlook.
The Reserve Bank of Australia remains committed to taking necessary actions to ensure that inflation returns to target within an acceptable timeframe.
The central bank will closely monitor global and domestic economic trends, inflation, and labour market conditions in its decision-making process.
Meanwhile, RBA Interest Rate Hike Puts Pressure on Families with Young Children
As the Reserve Bank of Australia (RBA) announces a 25 basis point increase in interest rates to 4.35 percent, families with young children face additional financial strain.
While the recent mid-year Child Care Subsidy increase provided some relief, a recent ACCC report highlights that without systemic reforms and workforce improvements for early childhood educators, early learning costs will continue to rise.
A national poll conducted for The Parenthood by Essential Research reveals that the majority of Australian parents with children under six are already grappling with living expenses, and the high costs of early childhood education and care exacerbate their financial challenges.
Interim CEO of The Parenthood, Jessica Rudd, emphasizes the need for comprehensive support in this time of rising costs.
She points out that while the earlier Child Care Subsidy increase was welcomed, it doesn’t go far enough and, in some cases, has been offset by fee hikes.
Rudd stresses the importance of universally accessible, affordable, and high-quality early childhood education and care as a way to alleviate the cost of living while supporting families during this period of economic uncertainty.
The Parenthood urges the Federal Government to take measures that make early learning more affordable for all families, considering the current high economic uncertainty and its impact on households.
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