During today’s meeting, the Board has chosen to maintain the cash rate target at its current level of 4.10 per cent, as well as keeping the interest rate paid on Exchange Settlement balances steady at 4.00 per cent.In the past year, we’ve seen a cumulative increase of 4 percentage points in interest rates, starting from May.
These higher rates have been instrumental in stabilizing the balance between supply and demand in our economy, and their positive impact continues.
Given the prevailing economic uncertainties, the Board has decided to maintain the current interest rates for this month. This decision allows for a more comprehensive assessment of the effects of the interest rate increases thus far and the overall economic outlook.
Australia has experienced a peak in inflation, with the July CPI indicator showing a subsequent decline. However, it’s important to note that inflation remains elevated, particularly in the realm of services and rental costs.
While goods price inflation has eased, service prices are still on the rise.
Our central forecast indicates a gradual decline in CPI inflation, with a return to the 2–3 per cent target range anticipated by late 2025.
The Australian economy is currently undergoing a phase of below-trend growth, which is expected to persist for some time.
High inflation has put pressure on real incomes, resulting in weak household consumption growth and subdued dwelling investment.
Despite these challenges, the labor market remains tight, although there has been a slight easing.
As the economy and employment are forecasted to grow below trend, we expect the unemployment rate to gradually rise to approximately 4½ per cent by late next year.
Wages have seen some growth in the past year, but it remains consistent with our inflation target, contingent on improved productivity growth.
The Board’s primary focus remains on returning inflation to target within a reasonable timeframe.
High inflation adversely affects everyone, impacting savings, household budgets, business planning and investments, and exacerbating income inequality.
Moreover, entrenched high inflation could lead to more severe consequences, including even higher interest rates and a more significant rise in unemployment.
So far, medium-term inflation expectations have aligned with our target, and it is crucial to maintain this alignment.
Recent data align with our outlook for inflation to return to the 2–3 per cent target range over the forecast horizon while ensuring continued output and employment growth.
Although inflation is on a downward trend, the labor market remains robust, and the economy is operating close to full capacity, despite a slower growth rate.
Nonetheless, uncertainties surround the outlook. Persistent services price inflation has been observed internationally, and a similar trend could manifest in Australia.
There are also questions about the time lags involved in the impact of monetary policy and how businesses set prices and wages amidst slower economic growth and a tight labor market.
The outlook for household consumption remains uncertain, with some households facing financial constraints while others benefit from rising property values, substantial savings, and increased interest income. Globally, there is heightened uncertainty about the Chinese economy due to ongoing issues in the property market.
It’s possible that further tightening of monetary policy may be necessary to bring inflation back within the target range within a reasonable timeframe.
However, this decision will continue to hinge on data and evolving risk assessments. In its decision-making process, the Board will closely monitor global economic developments, trends in household spending, and the inflation and labor market outlook.
The Board remains steadfast in its commitment to achieving its target of returning inflation to its intended range and will take necessary measures accordingly.
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