At its meeting yesterday, the Australia Reserve Bank Board decided to leave the cash rate target unchanged at 3.60 per cent and the interest rate on Exchange Settlement balances unchanged at 3.50 per cent.
The decision follows a cumulative increase in interest rates of 3½ percentage points since May last year. The Board recognises that monetary policy operates with a lag and that the full effect of this substantial increase in interest rates is yet to be felt.
Global inflation remains very high. In headline terms, it is moderating, although services price inflation remains high in many economies. The outlook for the global economy remains subdued, with below-average growth expected this year and next. The recent banking system problems in the United States and Switzerland have resulted in volatility in financial markets and a reassessment of the outlook for global interest rates.
These problems are also expected to lead to tighter financial conditions, which would be an additional headwind for the global economy. However, the Australian banking system is strong, well capitalised and highly liquid. It is well placed to provide the credit that the economy needs.
The Real Estate Institute of Queensland (REIQ) has welcomed the RBA’s decision to leave cash rates on hold this month, an important pause after 10 consecutive rises took it to a near 10-year high of 3.6%.
REIQ CEO Antonia Mercorella said the pause was a welcome reprieve to homeowners and small businesses who were unfairly carrying the burden of fixing the inflation curse.
“A pause in interest rate hikes is an appropriate response at this time, allowing households and businesses a few moments to pause and assess their expenditure. It also gives first home buyers a chance to stabilise their borrowing capacity.
“Further, with loan activity for new builds at 18-year lows in Queensland, the pause will give consumers more confidence to proceed with building their dream homes.”
She called for the Government to ensure that fiscal policy did its part to curb inflation.
“Now it’s important that the Government follows suit to ensure that fiscal policy matches monetary policy.”
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