The Reserve Bank Board has announced its decision to maintain the cash rate target at 4.35 per cent and the interest rate paid on Exchange Settlement balances at 4.25 per cent. In a statement released on May 7, 2024, the Board highlighted the current economic conditions and uncertainties moving forward.
"Inflation remains high and is falling more gradually than expected," the Board stated. The Consumer Price Index (CPI) grew by 3.6 per cent over the year to the March quarter, with underlying inflation higher than headline inflation. Services inflation, in particular, remains high and is moderating only slowly.
The Board acknowledged that higher interest rates have been helping to balance aggregate demand and supply, but data shows ongoing excess demand in the economy, driven by strong domestic cost pressures. While conditions in the labor market have eased slightly, they still remain tighter than ideal for sustained full employment and target inflation.
The economic outlook was described as highly uncertain, with the process of returning inflation to target expected to be challenging. The central forecasts anticipate inflation to return to the target range of 2–3 per cent in the second half of 2025 and to the midpoint in 2026. However, the persistence of services inflation poses a key uncertainty, with expectations for a more gradual easing reflecting strong labor market conditions.
Household consumption growth has been weak due to high inflation and earlier interest rate increases, impacting real disposable income. While real incomes are expected to grow later in the year, there is a risk that consumption may recover more slowly than anticipated, leading to subdued output growth and a deterioration in the labor market.
The Board emphasized the importance of returning inflation to target as its highest priority, aligning with the mandate for price stability and full employment. While inflation is easing, the Board expects it to take some time before reaching the target range sustainably. The path of interest rates to achieve this goal remains uncertain, with the Board committed to monitoring data and risks closely.
In conclusion, the Reserve Bank Board remains dedicated to its mission of returning inflation to target. The Board will continue to assess evolving economic conditions, both domestically and globally, to guide its decisions on monetary policy in the pursuit of price stability and full employment.