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The Reserve Bank has revealed its cash rate decision after its surprise June verdict.
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RBA reveals greatly debated July rate decision
04 July 2023
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The Reserve Bank of Australia (RBA) has decided to pause the cash rate, replicating its April decision, holding it at 4.10 per cent.
CreditorWatch’s chief economist Anneke Thompson said the pause of the cash rate was a sign the June data was not enough to warrant an increase despite concern remaining of the tight labour market and underlying inflation.
“Looking overseas, inflation areas that are typically labour intensive are only decreasing very slowly, while the price rises for goods are coming down faster. This is the same in Australia, where we recorded a decline of 0.4 per cent in the price of clothing and footwear,” said Ms Thompson.
Ms Thompson said the decision could also have been due to the RBA realising it has almost reached the peak in the effectiveness of tightening the monetary policy.
“We are now nearing, if not at, the point in the monetary policy tightening cycle where further rises to the cash rate will have limited further effect,” she said.
“Households with a home loan have already endured the fastest and steepest rise to the cash rate in history, with most of these people unable to increase income enough to offset their higher interest repayments.”
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She also believes exorbitant savings gained during COVID-19 have been spent with many households now pulling back significantly on their discretionary spending.
CPA Australia’s senior manager of business and investment policy Gavan Ord said while the pause will be welcomed by many firms it will not ease the pressure they currently face, particularly with further rate rises looming in the future.
“This is a critical juncture for the economy. The RBA will increase rates again and keep them elevated for longer if inflation remains stubbornly high,” said Mr Ord.
“The RBA and the government must ensure they continue pushing in the same direction. It is critical to dampen inflation even if it means some short-term pain.”
Mr Ord also called on the government to focus on improvements to help businesses through the tough economic reality they currently face.
“Federal and state governments must lead the community by example by tightening their belts and holding strong,” he said.
“We want governments to focus on improving business resiliency and dynamism – not financial sugar hits and tax hikes. We want to see measures to counter these issues while not worsening inflation.”
“Many businesses are feeling the pain of a slowing economy; more will do so over the coming months. This is not a passing trend that business can ride out – they must be proactive in managing this downturn.”
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