RBA Maintains Cash Rate Amid Productivity Growth Concerns

The Reserve Bank of Australia (RBA) has maintained its cash rate at 4.35% for the second consecutive meeting, but this decision comes as no surprise due to the economy's expected slowdown.

Australia's chronic productivity growth issue remains a major concern for the RBA, with Governor Michele Bullock stating that weak productivity outcomes will constrain the economy's ability to grow without generating high inflation.

The bank's latest macroeconomic forecasts show a downgrade in labour productivity expectation for 2026 from 0.2% growth to a fall of 0.5%, nearly a year after slashing its medium-term productivity from one percent to 0.7%. Bullock lamented that the RBA's inflation objective essentially consigns Australia to feeble economic growth.

AMP chief economist Shane Oliver believes the federal government could have helped the RBA in the budget by cutting spending to free up capacity in the economy and doing more to help boost productivity, but notes that some deregulation moves will take years to bear fruit.