Cash rate remains steady as RBA exercises caution
While payments have not increased, mortgage holders may be waiting a while yet before seeing a drop in rates
While payments have not increased, mortgage holders may be waiting a while yet before seeing a drop in rates
The Reserve Bank of Australia decided to keep the cash rate on hold at its first meeting for 2024, as it takes a cautious approach to last week’s news on inflation.
In a statement released earlier today, the board said rates would remain at 4.35 percent with the interest rate paid on Exchange Settlement balances unchanged at 4.25 percent.
The announcement was widely expected, with most economists pointing to September as the likely date for a fall in rates to start. This is despite inflation slowing to 4.1 percent in December, a greater than expected drop.
“Inflation continued to ease in the December quarter,” the RBA Board said in a statement. “Despite this progress, inflation remains high at 4.1 percent. Goods price inflation was lower than the RBA’s November forecasts. It has continued to ease, reflecting the resolution of earlier global supply chain disruptions and a moderation in domestic demand for goods.
“Services price inflation, however, declined at a more gradual pace in line with the RBA’s earlier forecasts and remains high. This is consistent with continuing excess demand in the economy and strong domestic cost pressures, both for labour and non-labour inputs.”
Despite positive signs, the board maintained that the outlook is still ‘highly uncertain’ and indicated a desire to tread carefully over the coming months to achieve the board’s desired 2-3 percent inflation target by 2025.
Inflation remained ‘sticky’ for much of 2023, with the RBA announcing 13 rate rises in just over 12 months to try to drive it down to more acceptable levels. Today’s decision offers a reprieve to mortgage holders and reflects the board’s interest in directing inflation down over the longer term.
“The Board needs to be confident that inflation is moving sustainably towards the target range,” the board said. “To date, medium-term inflation expectations have been consistent with the inflation target and it is important that this remains the case.”
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The bank posted unaudited cash earnings for the quarter of A$1.7 billion, down 2% on the average of its prior two quarters
National Australia Bank said that higher credit impairments against business loans contributed to a small fall in its unaudited December quarter cash earnings.
NAB , which is Australia’s second-largest bank by market capitalization, on Wednesday posted unaudited cash earnings for its fiscal first quarter of 1.74 billion Australian dollars, equivalent to about US$1.11 billion.
That was down 2% on the average of its prior two fiscal quarters. NAB did not give a year-earlier comparison.
The lender said that revenue grew by 3% compared with the average of its prior two fiscal quarters. Underlying profit growth of 4% over the same period was offset by higher credit impairment charges and income tax expenses, it added.
NAB, which posted an unaudited quarterly statutory profit of A$1.70 billion, said the A$267 million credit impairment charge included A$152 million of individually assessed charges. Those were mainly against Australian businesses and unsecured retail portfolios, it said.
The individual charges were up by 54% compared with a year earlier. NAB said that it had not altered its economic assumptions and scenario weightings.
“The economic outlook is improving but cost of living and interest rate challenges persisted,” Chief Executive Andrew Irvine said. “While most customers are proving resilient, we have maintained prudent balance sheet settings.”
NAB said it had seen a small decline in net interest margin due to funding costs, lending competition and deposits, partially offset by the benefit of higher interest rates.
On Tuesday, the Reserve Bank of Australia cut the country’s cash rate for the first time since 2020 but warned against expecting subsequent near-term cuts.
NAB is still targeting full fiscal-year productivity savings of more than A$400 million, and for operating expenses to grow by less than 4.5%, Irvine said.
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