Australian households have received some rare good news with the Reserve Bank voting unanimously to leave the cash rate target unchanged at 4.35 percent.
Despite this, the bank’s statement of explanation for the “hold” decision provided little comfort for the months ahead.
It said inflation was still too high and subject to some upward pressure.
The delay of any further increases was to allow more time to assess the response to previous interest rate rises and the impact of the oil supply disruption.
“Oil prices have eased in recent weeks, although energy and most related commodity prices remain higher than they were prior to the conflict in the Middle East,” the bank said.
“There are signs that some firms experiencing cost pressures are increasing the prices of their goods and services and others are looking to do so. Short-term measures of inflation expectations have eased but remain higher than earlier in the year.”
The bank said there were signs that growth in consumer spending was slowing and housing prices were falling in some capital cities.
The unemployment rate was higher than expected in April, but other measures of labour market conditions had been more resilient.
“There continue to be heightened uncertainties about the outlook for domestic economic activity and inflation,” the bank said.
“Resolution of the conflict in the Middle East is at an early stage, and there are plausible scenarios where inflation is higher and activity lower than envisaged under the May baseline forecasts.
“Global oil supply issues will take some time to resolve, maintaining upward pressure on global energy prices and inflation. At the same time, a period of prolonged uncertainty may also cause growth to be lower in Australia’s major trading partners and in Australia.”
The full statement is here.
