The Reserve Bank Board announced its decision to maintain the cash rate target at 4.35% and the interest rate on Exchange Settlement balances at 4.25%. This decision follows a period where inflation has decreased significantly since its peak in 2022, as increased interest rates have helped balance aggregate demand and supply. However, “underlying inflation remains too high,” with measures indicating a rate of around 3½%, still above the midpoint target of 2.5%.
Recent forecasts from November’s Statement on Monetary Policy suggest that inflation may not sustainably return to this target until 2026. The Board is gaining some confidence in these forecasts but acknowledges ongoing risks.
Economic activity data presents a mixed picture, with growth softer than expected in November. National accounts for the September quarter show economic growth at just 0.8% over the past year, marking one of the slowest paces since the early 1990s outside of the COVID-19 pandemic.
Labour market conditions remain tight despite easing gradually; however, some indicators have stabilized recently. The unemployment rate rose to 4.1% in October from 3.5% in late 2022, yet employment grew strongly over three months leading up to October.
Wage pressures eased more than anticipated according to November’s SMP, with wages growing by 3.5% over the year to September, although labour productivity growth continues to lag.
The Board assesses that monetary policy remains restrictive and functions as expected, noting that while aggregate demand appears above supply capacity, this gap is closing.
Projections indicate household consumption will grow as income rises despite recent slower-than-expected recoveries in both areas during September; there has been a noted pick-up in consumption through October and November.
Globally, uncertainty persists with most central banks easing monetary policies cautiously as they observe inflation moving towards targets amid geopolitical uncertainties.
Returning inflation sustainably within a reasonable timeframe remains a priority for the Board consistent with RBA’s mandate for price stability and full employment goals. While headline inflation shows significant decline and underlying inflation remains high according to recent data and forecasts from November SMP which suggest it will take time before reaching target levels consistently.”
The Board continues relying on evolving data assessments guiding its decisions focusing on global economic developments financial markets domestic demand trends alongside outlooks for inflation labor markets remaining resolute ensuring returning targets doing what’s necessary achieving outcomes.”
