The Reserve Bank of Australia (RBA) has maintained its cash rate target at 4.10 per cent. The interest rate paid on Exchange Settlement balances also remains unchanged at 4 per cent. The Monetary Policy Board reached this decision at its latest meeting.
Figure 1: The Reserve Bank of Australia maintains cash rate at 4.10 per cent
Inflation Continues to Moderate
The RBA noted that underlying inflation is easing. Inflation has declined significantly since peaking in 2022. Higher interest rates have played a role in bringing demand and supply towards equilibrium. The Board acknowledged that inflation is easing in line with forecasts published in the February Statement on Monetary Policy.
The Board remains cautious about the outlook. It seeks to ensure inflation returns to the midpoint of the target band sustainably. The Board noted its readiness to respond to international developments if they impact Australian economic activity and inflation. The broader global economic landscape remains volatile, which requires close monitoring.
Uncertainty Surrounds Economic Outlook
The Board highlighted ongoing uncertainties regarding domestic economic activity and inflation. Household consumption is projected to grow as income increases. However, the Board acknowledged potential risks to this projection. A slower-than-expected pick-up in consumption could result in subdued output growth and a deteriorating labour market.
Conversely, labour market conditions may strengthen beyond expectations. Leading indicators suggest tight labour market conditions despite a decline in employment in February. Labour underutilisation rates remain low, according to business surveys and liaison efforts.
Labour Market Conditions Remain Tight
The Board observed that labour market conditions remain tight. Despite a decline in employment figures in February, labour underutilisation rates are relatively low. Business surveys indicate labour availability remains a constraint for many employers.
The Board noted easing wage pressures, though productivity growth has not improved. Growth in unit labour costs remains high, presenting challenges to broader economic recovery.
External Factors Contribute to Uncertainty
The Board acknowledged global economic uncertainties. Recent tariff announcements from the United States have impacted global confidence. This impact could worsen if tariff measures expand or if other nations retaliate.
Geopolitical uncertainties remain pronounced. The Board noted potential adverse effects on global economic activity. Businesses and households may delay expenditures while awaiting greater clarity.
Potential Impact on Inflation
The Board observed that inflation could move in either direction. Several central banks have eased monetary policy this year. However, policymakers remain attentive to evolving risks stemming from recent global developments.
The Board expressed concern about the lags in monetary policy effects. It also highlighted uncertainties around firms’ pricing decisions and wage responses amid tight labour market conditions.
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Focus on Returning Inflation to Target
The Board reiterated its commitment to returning inflation to target sustainably. This objective aligns with the RBA’s mandate for price stability and full employment.
The Board noted that longer-term inflation expectations remain consistent with the target. Maintaining this consistency is critical for ensuring economic stability.
Assessment of Monetary Policy
The Board assessed that monetary policy remains restrictive. While underlying inflation continues to decline, risks remain present on both sides. The Board emphasised caution when considering the economic outlook.
Data-Driven Decision-Making
The Board indicated that its decisions will rely on ongoing data assessment. It will also monitor global economic trends, domestic demand, and labour market conditions.
The Board remains resolute in its determination to achieve its inflation target. The RBA intends to act as necessary to ensure inflation returns to target sustainably.
Conclusion
The RBA’s decision to keep the cash rate steady reflects ongoing caution in its approach to economic management. With inflation moderating but uncertainties persisting, the Board continues to focus on its long-term objectives of price stability and full employment.
