Monetary Policy Decision A Statement by Governor Michele Bullock

⚡️ Highlights:

1. The cash rate target and interest rate paid on Exchange Settlement balances in Australia will remain unchanged at 4.10% and 4.00% respectively.

2. Despite a recent increase in interest rates, inflation in Australia is still too high and is expected to remain so for some time. Goods price inflation has eased, but service prices, fuel prices, and rent inflation continue to rise.

3. The Australian economy has experienced stronger growth than expected in the first half of the year, but it is still below-trend growth. High inflation is impacting real incomes and household consumption and dwelling investment is weak. The unemployment rate is expected to rise gradually to around 4.5%.

4. Returning inflation to the target range of 2-3% is the Board’s priority. High inflation has negative impacts on savings, household budgets, business planning, and income inequality. It is important to maintain consistent medium-term inflation expectations.

5. The outlook is uncertain, with potential for persistent services price inflation, uncertainties in the effect of monetary policy, and uncertainties in household consumption. The Board may need to tighten monetary policy further to achieve the inflation target, but decisions will depend on data and risk assessments. The Board will closely monitor global economic developments, household spending trends, and inflation and labor market outlooks.

Executive Summary

The Reserve Bank of Australia’s Board convened today and resolved to maintain the existing cash rate target at 4.10% and the interest rate on Exchange Settlement balances at 4.00%. This decision is informed by a comprehensive evaluation of current economic conditions and projections.

Interest Rate Stability

Since May of the previous year, interest rates have seen an increment of 4 percentage points. This adjustment aims to establish an equilibrium between supply and demand within the economy. Given the prevailing uncertainties in the economic landscape, the Board has opted to sustain the current interest rates. This pause will afford the Board additional time to gauge the ramifications of prior rate hikes and to reassess the economic outlook.

Inflationary Trends

Although inflation in Australia has reached its zenith, it remains elevated and is expected to persist in the near term. Early indicators suggest a moderation in goods price inflation, while the cost of services and fuel continues to escalate. The Board anticipates that the Consumer Price Index (CPI) inflation will revert to the target range of 2-3% by the latter part of 2025.

Economic and Employment Outlook

The Australian economy exhibited stronger-than-anticipated growth during the first half of the year. However, it is currently in a phase of suboptimal growth, a trend likely to persist. Elevated inflation is exerting pressure on real incomes, thereby affecting household consumption and dwelling investments. Despite these challenges, the labor market conditions remain robust. The unemployment rate is projected to incrementally rise to approximately 4.5% by the end of next year.

Strategic Priorities

The Board remains steadfast in its commitment to normalizing inflation within a reasonable timeframe. Persistent high inflation poses detrimental effects on the economy, including eroding savings, straining household budgets, and exacerbating income inequality.

Risk Assessment and Future Directions

The Board acknowledges the presence of significant uncertainties, including the potential for persistent services price inflation and the impact of monetary policy lags. Additionally, the Board will continue to closely monitor global economic developments, household spending trends, and the inflation and labor market outlook. Further tightening of monetary policy may be necessitated by future data and risk assessments.

For inquiries, please contact Reserve Bank of Australia.

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