The Reserve Bank Board has decided to maintain the cash rate target at 4.35% and the interest rate on Exchange Settlement balances at 4.25%. The decision was made during its latest meeting, reflecting ongoing concerns about inflation levels.
"Underlying inflation remains too high," the statement noted, despite a significant drop since the peak in 2022. Headline inflation decreased to 2.8% over the year to September, down from 3.8% in June. This reduction is partly due to lower fuel and electricity prices but includes temporary cost-of-living relief measures. The underlying inflation, measured by the trimmed mean, was recorded at 3.5%, which aligns with forecasts but still exceeds the desired midpoint of 2.5%.
The outlook remains uncertain as forecasts are similar to those published in August. "The forecast path for underlying inflation reflects a judgement that aggregate demand remains above the economy’s supply capacity," it said.
Economic growth has been sluggish, impacted by previous declines in real disposable incomes and tight financial conditions affecting household consumption. However, spending by temporary residents like students and tourists has shown resilience.
Labor market indicators suggest continued tightness, though there has been some stabilization recently. Employment grew by an average of 0.4% per month from July to September, while unemployment rose slightly to 4.1% in September from a low of 3.5% in late 2022.
Wage pressures have eased somewhat, yet labor productivity remains stagnant at levels last seen in 2016.
"The Board’s assessment is that policy is currently restrictive and working broadly as anticipated," according to the statement, though uncertainties persist regarding future growth in household consumption and potential impacts on output and employment.
Internationally, many central banks have relaxed monetary policies as they gain confidence that inflation targets are within reach, though they remain cautious of risks like weaker labor markets or stronger inflationary pressures.
"Sustainably returning inflation to target within a reasonable timeframe remains the Board’s highest priority," emphasizing adherence to the RBA's mandate for price stability and full employment.
While headline inflation may stay lower temporarily, underlying inflation continues to signal persistent pressure, reinforcing vigilance against potential risks to inflation goals.
"The Board will continue to rely upon data and evolving assessments of risks to guide its decisions," focusing on global economic developments, domestic demand trends, and outlooks for both inflation and labor markets.