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Reserve Bank Faces Pressure Amid Soaring Gasoline Prices and Chinese Economic Decline


Sep 19, 2023

The Reserve Bank has expressed concerns regarding inflation and the possibility of further interest rate increases in the future. Rising gasoline prices could complicate the situation, and there are worries about a slowdown in China’s economy. This suggests that the process of returning to the target inflation rate may not be consistent. Despite evidence that the 12 previous rate hikes have slowed down the economy, the RBA board has not ruled out the possibility of future rate hikes.

During the recent meeting, the RBA board decided to keep the cash rate unchanged. However, the minutes from the meeting indicate that the fight to bring down inflation from 4.9% to the target range of 2-3% is far from over. This meeting was the last for Philip Lowe as the Reserve Bank Governor.

The RBA board stated that inflation remains high and is expected to remain that way for some time. There is concern that it will take time for services inflation to decline, while the unemployment rate remains low. The minutes highlight that inflation will likely stay above the target for an extended period, potentially necessitating further significant interest rate hikes. Concurrently, the economy is experiencing a period of slowed growth, with household consumption being affected by high inflation rates and rising interest rates. As a result, the economy may slow more sharply than expected.

The RBA board also expressed growing concern over the deteriorating conditions in China’s real estate market and the financial stress faced by developers, noting the risks they pose to economic activity. The assessment of the need for future rate hikes will be based on upcoming economic indicators.

Financial markets currently predict a low probability of a rate increase in the RBA’s October meeting. However, with inflation persisting or recovering, there is a possibility of further rate hikes before the year ends. Some experts even suggest a November rate hike on Melbourne Cup Day as a potential culmination of efforts to combat inflation. Notably, Philip Lowe’s tenure as RBA Governor has concluded, and Michelle Bullock has taken over as the new Governor, chairing the upcoming meeting on October 3rd.

By Editor

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