The Monetary Policy Board has announced that it will maintain the current cash rate target at 4.10 percent and the interest rate on Exchange Settlement balances at 4 percent. The decision reflects the Board's cautious outlook despite signs that underlying inflation is moderating.

The Board notes that inflation has decreased significantly since its peak in 2022. According to recent forecasts, inflation is easing, a trend that the Board hopes will continue to ensure the return of inflation to the midpoint of the target band sustainably. The Board is cautious about the outlook, ready to respond to international developments impacting Australian activity and inflation.

Domestic demand shows signs of recovery, with increases in real household incomes and easing financial stress, though some sectors report difficulties in passing on cost increases due to weak demand. Labor market indicators remain tight, despite a decline in employment in February, with labor underutilization rates low and labor availability constrained for many employers. Wage pressures have eased slightly, but productivity growth is lacking, keeping unit labor costs high.

The outlook for domestic economic activity and inflation holds notable uncertainties. There is a risk of slower-than-expected consumption growth leading to subdued output and a weaker labor market. Conversely, labor market outcomes may exceed expectations. The Board expresses concern about the time lag in the effects of monetary policy and the response of firms' pricing decisions and wages under current demand conditions.

Globally, uncertainties persist, particularly concerning recent tariff announcements from the United States, which impact confidence and could worsen if tariffs expand or trigger retaliatory measures. Geopolitical uncertainties are significant, posing potential adverse effects on global activity. Inflation could vary, with central banks easing monetary policy but focusing on risks from recent policy developments.

The Board prioritizes returning inflation to target within a reasonable timeframe. Ensuring long-term inflation expectations align with targets remains crucial. Despite a welcome decline in underlying inflation, the Board perceives risks on both sides and remains cautious.

The Board will continue to rely on data and evolving risk assessments to guide its decisions, focusing on global economic developments, domestic demand trends, and outlooks for inflation and the labor market. It is committed to taking necessary actions to achieve its inflation target.