Ominous warning in RBA decision to leave interest rates steady

Many will be breathing a sigh of relief following the RBA’s decision not to increase interest rates this month – but there was a sting in the tail.

The Reserve Bank has delivered homeowners a reprieve leaving interest rates steady at 4.10 per cent but warned it may be short-lived because inflation remains too high.

In another decision that surprised analysts and defied experts’ predictions, the RBA said that it needed more time to analyse how the economy was travelling.

But there was a sting in the tail, with the RBA governor Philip Lowe including an ominous warning at the end of his statement.

“The higher interest rates are working to establish a more sustainable balance between supply and demand in the economy and will continue to do so,’’ he said.

“In light of this and the uncertainty surrounding the economic outlook, the Board decided to hold interest rates steady this month. This will provide some time to assess the impact of the increase in interest rates to date and the economic outlook.”

RBA Governor Philip Lowe included an ominous warning at the end of his statement. Picture: NCA NewsWire / Gary Ramage

The RBA statement noted that inflation in Australia has passed its peak and the monthly CPI indicator for May showed a further decline.

“But inflation is still too high and will remain so for some time yet,’’ the statement said.

“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable time frame, but that will depend upon how the economy and inflation evolve.

“The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that.”

Acting Treasurer Katy Gallagher welcomed the decision. Picture: NCA NewsWire / Martin Ollman

Acting Treasurer Katy Gallagher welcomed the decision as providing homeowners with some relief.

“Whilst the decision today is welcome news, and I know for households across Australia it will be welcome news, we remain absolutely focused on the job that we have to do, which is providing cost of living relief where we can without adding to inflation,” she said.

Earlier, Labor frontbencher Bill Shorten said he had his “fingers crossed’ it would not lift rates.

“Wage growth is well below inflation. The argument that when inflation is going up, wages shouldn’t go up by a portion of the increase is further starving people and making life hard for them,” Mr Shorten said.

Originally published as Ominous warning in RBA decision to leave interest rates steady