In a meeting on Tuesday 5 September, Lowe stated interest rates will be held at 4.1 per cent, having been held last month as well. It was their 3rd consecutive meeting leaving the policy rate unchanged.
In a statement after the meeting, Lowe said inflation has “passed its peak”.
“Inflation in Australia has passed its peak and the monthly CPI indicator for July showed a further decline. But inflation is still too high and will remain so for some time yet.
“There are significant uncertainties around the outlook. Services price inflation has been surprisingly persistent overseas and the same could occur in Australia. There are also uncertainties regarding the lags in the effect of monetary policy and how firms’ pricing decisions and wages respond to the slower growth in the economy at a time when the labour market remains tight.
“The outlook for household consumption also remains uncertain, with many households experiencing a painful squeeze on their finances, while some are benefiting from rising housing prices, substantial savings buffers and higher interest income. And globally, there is increased uncertainty around the outlook for the Chinese economy due to ongoing stresses in the property market.
“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will continue to depend upon the data and the evolving assessment of risks.”
Lowe will step down as governor later this month and be replaced by Michele Bullock, who is currently deputy governor. Bullock will be the central bank’s first female governor.
Paul Bloxham, chief economist at HSBC, said: “The RBA has taken an approach that has prioritised a soft landing over getting inflation down quickly.
“To us, the RBA policymakers have felt comfortable taking this approach because of its long experience with a flexible inflation targeting regime – it has had the same flexible target for 30 years. Inherent in its approach is an acceptance that inflation can be above target and below target for extended periods, as long as it averages 2-3 per cent in the medium-term.”
Harvey Bradley, portfolio manager at Insight Investment, said it is becoming increasingly apparent the RBA believe they have tightened financial conditions sufficiently during this cycle.
“The softer than expected July inflation data along with weaker PMIs has likely reinforced this belief. Australian government bonds were little changed after the meeting given the no change and associated commentary was in line with expectations,” Bradley said.
“The risks for growth remain to the downside but the risks for inflation remain to the upside. We expect that the RBA will be on hold for an extended period, until they can be confident inflation has returned to their target on a sustainable basis.”
Moody’s Analytics economist, Harry Murphy Cruise, agreed that interest rates won’t need to rise further given inflation is coming down quickly.
“Instead, rates will stay on hold until the middle of next year. At that point, with inflation firmly retreating to the RBA’s 2 per cent to 3 per cent target band, a series of cuts will see that cash rate finish 2024 at 3.35 per cent and drop to 2.85 per cent in the second half of 2025.”
