Statement by the Monetary Policy Board: Monetary Policy Decision | Media Releases

At its meeting today, the Board decided to leave the cash rate target unchanged at 4.10 per cent
and the interest rate paid on Exchange Settlement balances at 4 per cent.

Underlying inflation is moderating.

Inflation has fallen substantially since the peak in 2022, as higher interest rates have been working to
bring aggregate demand and supply closer towards balance. Recent information suggests that underlying
inflation continues to ease in line with the most recent forecasts published in the February
Statement on Monetary Policy. Nevertheless, the Board needs to be confident that this
progress will continue so that inflation returns to the midpoint of the target band on a sustainable
basis. It is therefore cautious about the outlook.

The Board noted that monetary policy is well placed to respond to international developments if they were
to have material implications for Australian activity and inflation.

The outlook remains uncertain.

Private domestic demand appears to be recovering, real household incomes have picked up and there has been
an easing in some measures of financial stress. However, businesses in some sectors continue to report
that weakness in demand makes it difficult to pass on cost increases to final prices.

At the same time, a range of indicators suggest that labour market conditions remain tight. Despite a
decline in employment in February, measures of labour underutilisation are at relatively low rates and
business surveys and liaison suggest that availability of labour is still a constraint for a range of
employers. Wage pressures have eased a little more than expected but productivity growth has not picked
up and growth in unit labour costs remains high.

There are notable uncertainties about the outlook for domestic economic activity and inflation. The
central projection is for growth in household consumption to continue to increase as income growth rises.
But there is a risk that any pick-up in consumption is slower than expected, resulting in continued
subdued output growth and a sharper deterioration in the labour market than currently expected.
Alternatively, labour market outcomes may prove stronger than expected, given the signal from a range of
leading indicators.

More broadly, there are uncertainties regarding the lags in the effect of monetary policy and how
firms’ pricing decisions and wages will respond to the demand environment and weak productivity
outcomes while conditions in the labour market remain tight.

Uncertainty about the outlook abroad also remains significant. On the macroeconomic policy front, recent
announcements from the United States on tariffs are having an impact on confidence globally and this
would likely be amplified if the scope of tariffs widens, or other countries take retaliatory measures.
Geopolitical uncertainties are also pronounced. These developments are expected to have an adverse effect
on global activity, particularly if households and firms delay expenditures pending greater clarity on
the outlook. Inflation, however, could move in either direction. Many central banks have eased monetary
policy since the start of the year, but they have become increasingly attentive to the evolving risks
from recent global policy developments.

Sustainably returning inflation to target is the priority.

Sustainably returning inflation to target within a reasonable timeframe is the Board’s highest
priority. This is consistent with the RBA’s mandate for price stability and full employment. To
date, longer term inflation expectations have been consistent with the inflation target and it is
important that this remain the case.

The Board’s assessment is that monetary policy remains restrictive. The continued decline in
underlying inflation is welcome, but there are nevertheless risks on both sides and the Board is cautious
about the outlook.

The Board will rely upon the data and the evolving assessment of 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 resolute in its
determination to sustainably return inflation to target and will do what is necessary to achieve that
outcome.