Rates hinge on balance between economic slowdown and inflation: RBA

The Reserve Bank will be seeking to “strike the appropriate balance” between avoiding an unduly sharp weakening in demand and the need for inflation to fall back to the target level over the coming months.

Released today, the RBA’s quarterly Statement on Monetary Policy said world financial markets had come under severe stress in the period since its last statement and that recent economic data suggested spending and activity in Australia was slowing and would remain below trend for some time.

The slowdown in domestic spending had been led by the household sector, the RBA said, with households borrowing at a “significantly slower pace” than has been the case for some time.

While inflation appeared to be reaching its peak “a reduction...to the target is still expected to take some time” the bank said, as the depreciating Australian dollar counteracts slowing global commodity prices.

The Reserve Bank will next meet in just over three weeks to make its next decision on the official cash rate however markets are already pricing in a further 50 to 75 basis point reduction.