Interest rate to remain the same despite inflation still being high

The Reserve Bank of Australia met for the first time this year on Tuesday the sixth of February.

The first meeting in the new year saw the RBA make the decision to keep the cash rate at 4.35 percent.

This is despite inflation – which is moderating – still being an uncomfortably high percentage at 4.1.

This is the second consecutive time that the RBA has not raised interest rates, and a welcome sigh of relief for those struggling with high mortgage repayments.

In other positive news, the inflation rate for the price of goods was not as high as in November’s projections by the RBA.

According to a press release from the RBA, goods price inflation “continued to ease” which showed “the resolution of earlier global supply chain disruptions and a moderation in domestic demand for goods”.

On the other hand, inflation of the price of services went down at a slower rate and is still at a large number.

The growth in Australian wages has gotten better, though it is not thought to grow considerably more. It is, however, what the RBA states is “consistent with the inflation target”, reassuringly. This is based around “the assumption” by the RBA “that productivity growth increases to around its long-run average”.

However, Aussies are still being impacted by inflation, with dwelling investment and consumption by households being termed “weak” by the RBA.

Of most concern is the RBA’s statement that “the outlook is still highly uncertain”.

The RBA predicts that inflation will reach the desired rate (which is two to three percent) at some point next year.

The inflation in services prices is also predicted to decrease slowly, while employment will most likely “grow moderately” according to the RBA. However, unemployment will probably still grow a little more.

Of concern is the “high level of uncertainty” surrounding the future of China’s economy, tensions in the Middle East, and the Russian-Ukraine war.

Additionally, the RBA is not sure how the time it will take for their decisions to take affect will impact the economy, as well as if there will be a change in business’s wage and price points due to great demand, limited labour, and sluggish economic growth.

However, getting inflation to the target number “within a reasonable timeframe” is the RBA’s “priority”.

The Board also stated that “a further increase in interest rates cannot be ruled out”.

Only time will tell as to whether or not Australia will see another rise in interest rates.

More to come on the RBA next month, so stay tuned to AA Finance Solutions’ social media pages and blog.

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