The Monetary Policy Board has decided to lower the cash rate target by 25 basis points to 3.85 percent. This decision was made during their meeting on May 20, 2025.
Inflation has been moderating since its peak in 2022, with higher interest rates contributing to a balance between aggregate demand and supply. Recent data from the March quarter shows annual trimmed mean inflation at 2.9 percent, marking the first time it has fallen below 3 percent since 2021. Headline inflation remains within the target band of 2-3 percent at 2.4 percent.
Despite these developments, uncertainty persists in the global economy. Over the past three months, financial market volatility increased significantly, though recent tariff announcements have led to a rebound in market prices. There is still uncertainty regarding tariffs' final scope and other countries' policy responses. Geopolitical uncertainties continue to affect global economic activity as well.
Domestically, private demand seems to be recovering with real household incomes rising and some easing in financial stress measures. However, certain business sectors report difficulties in passing cost increases onto final prices due to weak demand.
Labour market conditions remain tight as employment continues to grow and labour underutilisation rates are low. Business surveys indicate that labour availability is still a constraint for many employers. Wages growth has softened recently without an increase in productivity growth, keeping unit labour costs high.
There are uncertainties about domestic economic activity and inflation stemming from both local and international factors. While household consumption is projected to grow as real incomes rise, recent data suggests this growth may be slower than anticipated three months ago.
Maintaining low and stable inflation remains a priority for the Board. They assess that risks to inflation have become more balanced with international developments expected to impact the economy negatively. The Board believes easing monetary policy at this meeting is appropriate but remains cautious given heightened uncertainty about aggregate demand and supply.
The Board will continue monitoring data and evolving risk assessments closely while focusing on price stability and full employment mandates.