The Monetary Policy Board announced its decision to maintain the cash rate target at 3.85 percent during its meeting today. The decision comes as inflation continues to moderate, having decreased significantly since its peak in 2022. Higher interest rates have contributed to bringing aggregate demand and supply closer to balance.
In the March quarter, headline inflation was at the midpoint of the target range, with trimmed mean inflation recorded at 2.9 percent. The baseline forecast from May suggested that underlying inflation would continue to moderate towards the midpoint of the 2–3 percent range, assuming a gradual easing path for the cash rate. Recent data indicates that June quarter inflation aligns broadly with these forecasts but is slightly stronger than expected.
Uncertainty remains high in the global economy, particularly concerning US tariffs and international policy responses. Despite financial market prices rebounding on expectations that extreme outcomes will be avoided, trade policy developments are anticipated to negatively impact global economic activity.
Domestically, private demand appears to be recovering gradually with an increase in real household incomes and some relief in financial stress measures. However, certain sectors report difficulty passing cost increases onto final prices due to weak demand.
Labour market conditions remain tight with low rates of labour underutilisation and reports from businesses indicating labour availability constraints. Wages growth has softened from its peak, yet productivity growth has not improved, keeping unit labour costs high.
The outlook for domestic economic activity and inflation is uncertain due to both domestic and international factors. The March quarter national accounts showed an increase in domestic demand over six months. Forecasts predict continued growth in household consumption as real incomes rise, though there is a risk this could progress slower than expected.
The Board emphasized maintaining price stability and full employment as priorities while acknowledging balanced risks to inflation and strong labour market conditions amid uncertainty about aggregate demand and supply. It noted readiness to respond decisively if international developments significantly affect Australia’s activity and inflation.
Today’s policy decision was made by majority vote: six members were in favor while three opposed it.
