The Reserve Bank (RBA) has opted to maintain its current interest rate levels, despite inflation aligning with its target range at 2.8% for September and 2.1% for October.
This decision reflects a cautious approach in the face of global economic turbulence and domestic fiscal interventions.
Nerida Conisbee (pictured above), chief economist at Ray White, expressed disappointment over RBA’s decision to hold rates but noted the relative strength of Australia’s economy compared to global counterparts.
“While our economic conditions are not robust, we are not in recession, employment growth is stable, and retail trade is increasing,” Conisbee said.
The unemployment rate has also remained relatively low, further justifying the hold on rate changes.
A significant factor in the subdued inflation rate is the National Energy Bill Relief program, which provided a $300 discount on electricity bills per household, tempering the rise in electricity costs – a major inflation driver this cycle.
Despite differing views on this influence, the unpredictable economic forecast for 2025 has shifted expectations. Initially, four rate cuts were anticipated for 2025; now, predictions have scaled back to just two, with the first expected around May and the second in September.
The recent election of Donald Trump in the United States and his proposal of imposing up to 60% tariffs on Chinese goods introduces further complexity.
While initially, such tariffs might lower the cost of goods for Australian consumers, the long-term outlook could be detrimental, slowing China’s economy – a key trade partner.
This deceleration could impact a broad spectrum of Australian industries, from mineral exports to education, and might even reignite inflationary pressures both locally and internationally, Conisbee said.
RBA is poised to navigate these uncertain waters with heightened caution.
Potential early rate cuts in 2025, possibly as soon as February, hinge on upcoming economic indicators such as December’s inflation rates and shifts in employment and GDP figures.
As the global economic landscape evolves, RBA’s strategies will likely adapt to safeguard Australia’s economic stability.
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