RBA: Rates Remain Unchanged
War in Ukraine and local flooding may delay any future rate hike.
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The RBA has decided to maintain the cash rate at its record low level of 0.1% in line with its previous expectations despite the market speculating on the effect of the war in Ukraine.
Russia’s invasion of the Ukraine and the impact of natural disasters on home soil are expected to delay any monetary policy tightening, as a major new source of uncertainty.
Further, inflation in parts of the world has increased sharply due to energy prices and disruptions to supply chains at a time of strong demand.
The Australian Economy remains resilient — spending is up following the Omicron outbreak and the unemployment rate is at a 14-year low of 4.2% while underemployment is at its lowest level since 2008.
According to the RBA, unemployment still has room to fall lower again.
“The RBA’s central forecast is for the unemployment rate to fall to below 4 per cent later in the year and to remain below 4 per cent next year,” said Dr Philip Lowe in his address.
Inflation has picked up more quickly than the RBA had expected but the RBA governor Dr Philip Lowe is still positive on the Australian economy’s financial conditions stating.
“Financial conditions in Australia continue to be highly accommodative. Interest rates remain at a very low level, although some fixed rates have risen recently. The Australian dollar exchange rate is around its lows of the past year or so. “
Further, a levelling of the housing market has been noted following a period of strong growth with Dr Lowe stating, “Housing prices have risen strongly, although the rate of increase has eased in some cities. With interest rates at historically low levels, it is important that lending standards are maintained and that borrowers have adequate buffers.”
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Continued stagflation and cost of living pressures are causing couples to think twice about starting a family, new data has revealed, with long term impacts expected
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Australia is in the midst of a ‘baby recession’ with preliminary estimates showing the number of births in 2023 fell by more than four percent to the lowest level since 2006, according to KPMG. The consultancy firm says this reflects the impact of cost-of-living pressures on the feasibility of younger Australians starting a family.
KPMG estimates that 289,100 babies were born in 2023. This compares to 300,684 babies in 2022 and 309,996 in 2021, according to the Australian Bureau of Statistics (ABS). KPMG urban economist Terry Rawnsley said weak economic growth often leads to a reduced number of births. In 2023, ABS data shows gross domestic product (GDP) fell to 1.5 percent. Despite the population growing by 2.5 percent in 2023, GDP on a per capita basis went into negative territory, down one percent over the 12 months.
“Birth rates provide insight into long-term population growth as well as the current confidence of Australian families,” said Mr Rawnsley. “We haven’t seen such a sharp drop in births in Australia since the period of economic stagflation in the 1970s, which coincided with the initial widespread adoption of the contraceptive pill.”
Mr Rawnsley said many Australian couples delayed starting a family while the pandemic played out in 2020. The number of births fell from 305,832 in 2019 to 294,369 in 2020. Then in 2021, strong employment and vast amounts of stimulus money, along with high household savings due to lockdowns, gave couples better financial means to have a baby. This led to a rebound in births.
However, the re-opening of the global economy in 2022 led to soaring inflation. By the start of 2023, the Australian consumer price index (CPI) had risen to its highest level since 1990 at 7.8 percent per annum. By that stage, the Reserve Bank had already commenced an aggressive rate-hiking strategy to fight inflation and had raised the cash rate every month between May and December 2022.
Five more rate hikes during 2023 put further pressure on couples with mortgages and put the brakes on family formation. “This combination of the pandemic and rapid economic changes explains the spike and subsequent sharp decline in birth rates we have observed over the past four years,” Mr Rawnsley said.
The impact of high costs of living on couples’ decision to have a baby is highlighted in births data for the capital cities. KPMG estimates there were 60,860 births in Sydney in 2023, down 8.6 percent from 2019. There were 56,270 births in Melbourne, down 7.3 percent. In Perth, there were 25,020 births, down 6 percent, while in Brisbane there were 30,250 births, down 4.3 percent. Canberra was the only capital city where there was no fall in the number of births in 2023 compared to 2019.
“CPI growth in Canberra has been slightly subdued compared to that in other major cities, and the economic outlook has remained strong,” Mr Rawnsley said. “This means families have not been hurting as much as those in other capital cities, and in turn, we’ve seen a stabilisation of births in the ACT.”
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