The Monetary Policy Board convened today and resolved to maintain the cash rate target at 3.85 percent. The decision reflects ongoing moderation in inflation, which has decreased significantly since its peak in 2022 due to higher interest rates balancing aggregate demand and supply.

In the March quarter, headline inflation was at the midpoint of the target range, while trimmed mean inflation stood at 2.9 percent. The baseline forecast from May predicted underlying inflation would continue to moderate towards the midpoint of the 2–3 percent range, assuming a gradual easing path for the cash rate. Recent monthly CPI data indicate that June quarter inflation aligns with this forecast but is slightly stronger than anticipated.

The Board acknowledged uncertainty in the global economy, with unknown outcomes related to US tariffs and policy responses from other countries. Despite financial market rebounds suggesting extreme outcomes may be avoided, trade policy developments are expected to negatively impact global economic activity.

Domestically, private demand appears to be recovering gradually with real household incomes increasing and some financial stress measures easing. However, certain sectors report difficulties passing on cost increases due to weak demand.

Labour market conditions remain tight with low labour underutilization rates and constraints on labour availability for employers. Wages growth has softened from its peak without a corresponding increase in productivity growth, leading to high unit labour costs.

Uncertainties persist regarding domestic economic activity and inflation due to both domestic and international factors. While domestic demand has picked up over six months according to March quarter national accounts, there is a risk that growth in household consumption may slow more than expected.

The Board remains focused on maintaining price stability and full employment amid these uncertainties. It judged that waiting for additional information is prudent before confirming whether inflation will sustainably reach 2.5 percent. Monetary policy remains positioned to respond decisively if international developments materially affect Australian activity and inflation.

Today's decision was made by majority vote: six members were in favor while three opposed it.