The Reserve Bank of Australia’s Monetary Policy Board has decided to keep the cash rate at 3.60 percent following its latest meeting. The Board cited a recent uptick in inflation, noting that while inflation has dropped significantly since its peak in 2022, some of the current increase may be temporary.
According to the Board, “While inflation has fallen substantially since its peak in 2022, it has picked up more recently. The Board’s judgement is that some of the recent increase in underlying inflation was due to temporary factors and there is uncertainty about how much signal to take from the monthly CPI data given it is a new data series. Nevertheless, the data do suggest some signs of a more broadly based pick-up in inflation, part of which may be persistent and will bear close monitoring.”
The statement also noted ongoing recovery in economic activity. Growth in private demand has been supported by both consumption and investment. Housing market activity and prices are also rising. Financial conditions have eased compared to earlier in the year, with credit accessible for households and businesses, though previous interest rate reductions have not yet fully impacted demand, prices, or wages.
On labor market conditions, the Board said: “Various indicators suggest that labour market conditions remain a little tight. The unemployment rate has risen gradually over the past year and employment growth has slowed. However, measures of labour underutilisation remain at low rates, surveyed measures of capacity utilisation are above their long-run average and business surveys and liaison continue to suggest that a significant share of firms are experiencing difficulty sourcing labour. Wages growth, as measured by the Wage Price Index, has eased from its peak but broader measures of wages continue to show strong growth and growth in unit labour costs remains high.”
The Board acknowledged uncertainties regarding domestic economic activity and inflation as well as questions about how restrictive monetary policy currently is. Private sector momentum was described as stronger than expected; if this continues it could add pressure on capacity.
“The recent data suggest the risks to inflation have tilted to the upside, but it will take a little longer to assess the persistence of inflationary pressures,” said the statement. “Private demand is recovering. Labour market conditions still appear a little tight but further modest easing is expected. The Board therefore judged that it was appropriate to remain cautious, updating its view of the outlook as the data evolve.”
Looking ahead, the Board emphasized continued monitoring: “The Board will be attentive to the data and the evolving assessment of the outlook and risks to guide its decisions. In doing so, it will pay close attention to developments in the global economy and financial markets, trends in domestic demand, and the outlook for inflation and the labour market. The Board is focused on its mandate to deliver price stability and full employment and will do what it considers necessary to achieve that outcome.”
Today’s decision was unanimous.
