Statement by the Reserve Bank Board: Monetary Policy Decision | Media Releases (2024)

Number2024-12

Date18 June 2024

At its meeting today, the Board decided to leave the cash rate target unchanged at 4.35percentand the interest rate paid on Exchange Settlement balances unchanged at 4.25percent.

Inflation remains above target and is proving persistent.

Inflation has fallen substantially since its peak in 2022, as higher interest rates have been working tobring aggregate demand and supply closer towards balance. But the pace of decline has slowed in the mostrecent data, with inflation still some way above the midpoint of the 2–3percent target range. Over the year to April, the monthlyCPI indicator rose by 3.6percent in headline terms, and by 4.1percent excludingvolatile items and holiday travel, which was similar to its pace in December 2023.

Broader data indicate continuing excess demand in the economy, coupled with elevated domestic costpressures, for both labour and non-labour inputs. Conditions in the labour market eased further over thepast month but remain tighter than is consistent with sustained full employment and inflation at target.Wages growth appears to have peaked but is still above the level that can be sustained given trendproductivity growth. Recent data revisions suggest that consumption over the past year was stronger thanpreviously suggested. At the same time, output growth has been subdued, and consumption per capita hasbeen declining, as households restrain their discretionary expenditure and inflation weighs on realincomes.

The outlook remains highly uncertain.

The economic outlook remains uncertain and recent data have demonstrated that the process of returninginflation to target is unlikely to be smooth.

The central forecasts published in May were for inflation to return to the target range of 2–3percent in the second half of 2025 and to the midpoint in2026. Since then, there have been indications that momentum in economic activity is weak, including slowgrowth in GDP, a rise in the unemployment rate and slower-than-expected wages growth. At the same time,the revisions to consumption and the saving rate and the persistence of inflation suggest that risks tothe upside remain. Recent budget outcomes may also have an impact on demand, although federal and stateenergy rebates will temporarily reduce headline inflation. The persistence of services price inflation isa key uncertainty. Also, although growth in unit labour costs has eased, it remains high. Productivitygrowth needs to pick up in a sustained way if inflation is to continue to decline.

There is uncertainty around consumption growth. Real disposable incomes have now stabilised and areexpected to grow later in the year, assisted by lower inflation and tax cuts. There has also been anincrease in wealth, driven by housing prices. Together, these factors are expected to support growth inconsumption over the coming year. But there is a risk that household consumption picks up more slowlythan expected, resulting in continued subdued output growth and a noticeable deterioration in the labourmarket.

More broadly, there are uncertainties regarding the lags in the effect of monetary policy and howfirms’ pricing decisions and wages will respond to the slower growth in the economy at a time ofexcess demand, and while conditions in the labour market remain tight.

There also remains a high level of uncertainty about the overseas outlook. Output growth in most advancedeconomies appears to have troughed. There has been improvement in the outlook for the Chinese and USeconomies, and many commodity prices have picked up. Some central banks have eased policy, although theyremain alert to the risk of persistent inflation. Nevertheless, geopolitical uncertainties, includingthose related to the conflicts in the Middle East and Ukraine, remain elevated, which may haveimplications for supply chains.

Returning inflation to target is the priority.

Returning inflation to target within a reasonable timeframe remains the Board’s highest priority.This is consistent with the RBA’s mandate for price stability and full employment. The Board needsto be confident that inflation is moving sustainably towards the target range. To date, medium-terminflation expectations have been consistent with the inflation target and it is important that thisremains the case.

Inflation is easing but has been doing so more slowly than previously expected and it remains high. TheBoard expects that it will be some time yet before inflation is sustainably in the target range. Whilerecent data have been mixed, they have reinforced the need to remain vigilant to upside risks toinflation. The path of interest rates that will best ensure that inflation returns to target in areasonable timeframe remains uncertain and the Board is not ruling anything in or out. The Board willrely upon the data and the evolving assessment of risks. In doing so, it will continue to pay closeattention to developments in the global economy, trends in domestic demand, and the outlook for inflationand the labour market. The Board remains resolute in its determination to return inflation to target andwill do what is necessary to achieve that outcome.