The Monetary Policy Board has announced a decision to lower the cash rate target by 25 basis points, setting it at 3.85 percent. This move comes amid moderating inflation and increased uncertainty in the global economy.
Inflation rates have significantly decreased since their peak in 2022. The March quarter data shows that annual trimmed mean inflation is now at 2.9 percent, dropping below three percent for the first time since 2021. Headline inflation stands at 2.4 percent, within the two to three percent target band. Projections indicate that while headline inflation may rise slightly over the next year due to temporary factors, underlying inflation is expected to remain near the midpoint of the target range.
The Board noted that recent developments in global trade policies and geopolitical tensions have heightened uncertainty, impacting economic activities worldwide. These factors could affect growth, employment, and inflation in Australia as households and firms might delay spending until there is more clarity on future conditions.
Despite international uncertainties, domestic demand appears to be recovering with improvements in real household incomes and easing financial stress indicators. However, some businesses still struggle with passing cost increases onto final prices due to weak demand.
Labor market conditions remain tight as employment continues to grow and labor underutilization rates are low. Although wages growth has softened recently without an accompanying increase in productivity growth, unit labor costs continue to rise.
The outlook for domestic economic activity and inflation remains uncertain due to both local and international influences. While household consumption is projected to grow with rising real incomes, this increase might be slower than anticipated earlier this year.
The Board’s primary focus remains on maintaining low and stable inflation within its target band. Given the balanced risks around inflation and potential international impacts on Australia’s economy, easing monetary policy was deemed appropriate at this meeting. The Board remains vigilant about aggregate demand and supply uncertainties and is prepared to respond decisively if international developments significantly impact Australia’s economy.
The Board will closely monitor data trends globally and domestically concerning economic demands, financial markets, inflation outlooks, and labor market conditions to guide future decisions focused on achieving price stability and full employment.
