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RBA keeps interest rates on hold: What does it mean for business?

RBA keeps interest rates on hold: What does it mean for business?
RBA keeps interest rates on hold: What does it mean for business?

The Reserve Bank of Australia has decided to leave the interest rate unchanged at 4.35%. However, there are some red flags. The RBA is warning that the “economic outlook remains uncertain.” This is despite “encouraging signs” that inflation is moderating. 

December quarter national accounts data confirms that “growth has slowed down.” There is a direct link between how households spend their income, whether on necessities like food and clothing or luxuries, in-store or online. “Household consumption growth remains particularly weak amid high inflation and the rise in interest rates,” says the RBA. 

However, there is some good news for business owners. The reserve bank says real incomes have stabilized and are expected to “grow from here.”

Uncertainty in Australia’s job market

The labor costs remain “very high,” says the monetary policy. However, it says there is still a lot of uncertainty in the job market. “It has begun to moderate slightly as measured productivity growth has picked up in the past two quarters, but whether this trend will be sustained is uncertain.”

When will inflation in Australia stabilize? 

The Reserve Bank hopes inflation will return to the target range of two and three percent in 2025 and the midpoint in 2026.

“Services price inflation is expected to decline gradually as demand moderates and growth in labor and non-labor costs eases,” reads the statement. 

Some light in the dark tunnel for businesses. The RBA says employment, however, is still expected to “grow moderately.” However, on the flip side, there are warnings that the “unemployment rate and the broader underutilization rate are expected to increase a bit further.”

Impact of other countries on the Aussie economy

While the war between Russia and Ukraine is still raging, the stakes are still high for it to impact the Australian economy

Conflict in the Middle East has an impact on supply chain disruptions as a result of the crisis. “It decreases productivity and increases costs for Australian companies. [It has] a flow of adverse impacts on profitability and stock price of Australian companies,” says the Science Direct journal.

Another possible impact on the Australian economy is the Chinese economy. The Reserve Bank says the “uncertainty around the outlook for the Chinese economy” creates hesitance about the future. 

China is Australia’s largest trading partner. There are strong links between these two countries. A shock to the Chinese economy can affect Australia in multiple ways. Trade is most likely to absorb the most demanding pressure. With a sharp slowdown in China’s economy, global commodity and financial markets could also be affected. 

Whatever happens in China will have ramifications and spillovers to Australia. 

Returning Australia’s inflation 

While recent data indicates that inflation is easing, the board warns that it’s not enough to celebrate. “The board expects it will be some time before inflation is sustainably in the target range,” says the RBA. 

The trajectory of interest rates needed to ensure a return to target inflation within a reasonable timeframe still needs to be determined. For now, the board is keeping all their options open. 

About the author

Mia is a multi-award-winning journalist. She has more than 14 years of experience in mainstream media. She's covered many historic moments that happened in Africa and internationally. She has a strong focus on human interest stories, to bring her readers and viewers closer to the topics at hand.

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