Interest rates remain unchanged after the Reserve Bank of Australia (RBA) left the cash rate at 4.35 percent following its board meeting today.
The RBA statement after the meeting said inflation had fallen substantially since its peak in 2022, as higher interest rates had been working to bring aggregate demand and supply closer towards balance.
“But inflation is still some way above the midpoint of the 2–3 per cent target range,” it said.
The RBA said underlying inflation had now been above the midpoint of the target for 11 consecutive quarters and quarterly underlying CPI inflation had fallen very little over the past year.
It said the economic outlook was uncertain and recent data had demonstrated that the process of returning inflation to target had been slow and bumpy.
“The central forecasts set out in the latest Statement on Monetary Policy (SMP) are for inflation to return to the target range of 2–3 per cent late in 2025 and approach the midpoint in 2026.
“This represents a slightly slower return to target than forecast in May, based on estimates that the gap between aggregate demand and supply in the economy is larger than previously thought.”
The RBA said there was substantial uncertainty around these forecasts, with revisions to consumption and the saving rate in the most recent National Accounts, high unit labour costs and the persistence of inflation, particularly in the services sector, suggesting there was upside risks to inflation.
“Wages growth appears to have peaked but is still above the level that can be sustained given trend productivity growth,” it said
“On the other hand, momentum in economic activity has been weak, as evidenced by slow growth in GDP, a rise in the unemployment rate and reports that many businesses are under pressure. And there is a risk that household consumption picks up more slowly than expected, resulting in continued subdued output growth and a noticeable deterioration in the labour market.”
The RBA said returning inflation to target within a reasonable timeframe remained the Board’s highest priority.
“Inflation in underlying terms remains too high. The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome.”
