The Reserve Bank of Australia board has voted to keep interest rates on hold at 4.35 per cent again in its final update before next week's federal budget. The bank did not rule out further increases and said the "process of returning inflation to target is unlikely to be smooth". While the RBA still expects to have inflation back within its target range of 2-3 per cent by December 2025, in the near term, price pressures are proving harder to budge.
chief economist Brendan Rynne said a budget in "expansion mode" would be the biggest threat to inflation taking off again. He said government spending as a total of GDP was too high, running at around 27 per cent compared to the pre-pandemic average of around 24 per cent. "What we really need now is for the federal budget not to add to aggregate demand – it should be neutral, or if possible, even slightly contractionary," he said.
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