Statement by Philip Lowe, Governor: 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 unchanged at 4.00 per cent.

Interest rates have been increased by 4 percentage points since May last year. The higher interest
rates are working to establish a more sustainable balance between supply and demand in the economy and
will continue to do so. In light of this and the uncertainty surrounding the economic outlook, the Board
again decided to hold interest rates steady this month. This will provide further time to assess the
impact of the increase in interest rates to date and the economic outlook.

Inflation in Australia has passed its peak and the monthly CPI indicator for July showed a further
decline. But inflation is still too high and will remain so for some time yet. While goods price
inflation has eased, the prices of many services are rising briskly. Rent inflation is also elevated. The
central forecast is for CPI inflation to continue to decline and to be back within the 2–3 per cent target range in late 2025.

The Australian economy is experiencing a period of below-trend growth and this is expected to continue for
a while. High inflation is weighing on people’s real incomes and household consumption growth is
weak, as is dwelling investment. Notwithstanding this, conditions in the labour market remain tight,
although they have eased a little. Given that the economy and employment are forecast to grow below
trend, the unemployment rate is expected to rise gradually to around 4½ per cent late next
year. Wages growth has picked up over the past year but is still consistent with the inflation target,
provided that productivity growth picks up.

Returning inflation to target within a reasonable timeframe remains the Board’s priority. High
inflation makes life difficult for everyone and damages the functioning of the economy. It erodes the
value of savings, hurts household budgets, makes it harder for businesses to plan and invest, and worsens
income inequality. And if high inflation were to become entrenched in people’s expectations, it
would be very costly to reduce later, involving even higher interest rates and a larger rise in
unemployment. To date, medium-term inflation expectations have been consistent with the inflation target
and it is important that this remains the case.

The recent data are consistent with inflation returning to the 2–3 per cent target range over the forecast horizon and with
output and employment continuing to grow. Inflation is coming down, the labour market remains strong and
the economy is operating at a high level of capacity utilisation, although growth has slowed.

There are significant uncertainties around the outlook. Services price inflation has been surprisingly
persistent overseas and the same could occur in Australia. There are also uncertainties regarding the
lags in the effect of monetary policy and how firms’ pricing decisions and wages respond to the
slower growth in the economy at a time when the labour market remains tight. The outlook for household
consumption also remains uncertain, with many households experiencing a painful squeeze on their
finances, while some are benefiting from rising housing prices, substantial savings buffers and higher
interest income. And globally, there is increased uncertainty around the outlook for the Chinese economy
due to ongoing stresses in the property market.

Some further tightening of monetary policy may be required to ensure that inflation returns to target in a
reasonable timeframe, but that will continue to depend upon the data and the evolving assessment of
risks. In making its decisions, the Board will continue to pay close attention to developments in the
global economy, trends in household spending, and the outlook for inflation and the labour market. The
Board remains resolute in its determination to return inflation to target and will do what is necessary
to achieve that.

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