Reporter's view: RBA gets some much-needed breathing room
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Reporter's view: Economics correspondent Jennifer Duke writes: "The RBA won’t meet again until August. This might prove fortuitous for governor Michele Bullock, giving the board plenty of breathing room to consider how consumers respond in the new financial year to a raft of spending initiatives and tax cuts from state and federal government budgets.
"Chief among them are stage three tax cuts and energy bill rebates, with the board acknowledging in its statement today that state and federal energy rebates will affect demand.
"CreditorWatch chief economist Anneke Thompson says these are an 'obvious key risk' to the inflation outlook. Some economists think it could prompt extra spending behaviour. But others reckon it might not actually amount to much.
"As Thompson notes, 'most surveys point to households allocating their tax savings to essentials that have already gone up in price — such as mortgages and rents, and electricity and gas services'
"Westpac senior economist Justin Smirk thinks it all spells more volatility in the inflation data. In a note, he said the rebates will push inflation below 3% in 2024, but then as they end it’ll be back above 3% in 2025. That’s provided they’re not repeated in a future budget.
"It makes it a difficult balancing act for the RBA. Even so, Smirk thinks the June quarter inflation will be at 1%, or 3.8% for the year.
"And he’s not ruling out a 2024 move from the central bank. He said the RBA will 'look through the headline volatility and focus on core inflation. If core inflation continues to moderate as expected it may open the window for a November rate cut'."
RBA keeps interest rates on hold
The news: The Reserve Bank has held rates steady at 4.35% at its June meeting.
The numbers: This is the fifth consecutive meeting where the RBA has kept rates on hold, following a 25 basis point increase in November. It marks the longest on-hold period since May 2022 when the rate hiking cycle began.
The context: The RBA was not expected to move on rates today. The central bank board doesn’t meet again until August, when it will also unveil a full new set of economic forecasts.
Expectations for rate cuts have been getting pushed back, with markets and some major banks now looking to 2025 for the start of the easing cycle. The next quarterly inflation data for the three months to June is due at the end of July.
What they said: "The economic outlook remains uncertain and recent data have demonstrated that the process of returning inflation to target is unlikely to be smooth." the RBA board said in a statement.
"Recent budget outcomes may also have an impact on demand, although federal and state energy rebates will temporarily reduce headline inflation."
The source: Reserve Bank board statement
