RBA cash rate decision

At its meeting today, the Board decided to increase the cash rate target by 25 basis points to 4.60 4.85 per cent.

rewrittenInflation remains elevated and some of the upside risks flagged in August are materialising. The conflict in the Middle East has broadened and global energy prices are now much higher than had been assumed in the August forecasts. And there remains pressure on domestic capacity. Short-term measures of inflation expectations remain elevated. And recent inflation outcomes in Australia were stronger than expected at the previous meeting.Inflation remains elevated and recent data indicate that it is broadly based. The inflation outlook has also been revised materially higher in the updated staff forecasts. This partly reflects higher fuel and other commodity prices affected by the conflict in the Middle East. But domestic capacity pressures are also judged to have been a little tighter than earlier thought. AI-related demand investment is driving rapid growth in global prices for technology-related goods. goods, and inflation in many goods and services remains high. Liaison indicates that many firms are experiencing cost pressures and are either increasing the prices of their goods and services in response or looking to do so. newInflation is now forecast to remain elevated through much of 2027 and is not expected to reach the top of the 2–3 per cent target range until late 2027, around three quarters later than previously forecast. This presents upside risks to inflation expectations; some measures are assessed to have risen lately.

The three increases in the cash rate target since the beginning of the year have tightened financial conditions and the economy appears to be slowing. conditions. rewrittenGrowth in output has slowed but, at the margin, was stronger than expected in the June quarter. There are signs that growth in consumer spending is easing gradually as expected, although housing prices have fallen in most capital cities and new housing loans have declined noticeably. Labour market conditions have eased broadly as expected in recent months, and labour market leading indicators are broadly stable. Meanwhile, growth in business investment and debt is strong. The Board remains focused on ensuring that high inflation does not become embedded. To achieve this, growth in aggregate demand needs to remain subdued for a period to reduce capacity pressures and bring inflation back to target.The economy is slowing, housing prices have fallen significantly and the unemployment rate has risen. The forecasts see growth in output slowing further over the coming year, which is expected to reduce capacity pressures and help return inflation to target. Higher interest rates and falls in housing prices and turnover are expected to weigh on growth in dwelling investment and household consumption. On the other hand, growth in overall business investment is forecast to be stronger in the near term, including data centre-related investment. Employment is expected to continue to grow, but the unemployment rate is projected to rise by more than expected in the August forecasts.

There continue to be heightened uncertainties about the outlook for domestic economic activity and inflation. The Middle East conflict remains unresolved, and there are scenarios where inflation is higher and activity lower than forecast. Global oil supply disruptions are maintaining upward pressure on global and domestic energy prices and inflation. A period of prolonged uncertainty may also cause growth to be lower overseas and in Australia. To date, however, growth in Australia’s major trading partners has been stronger than expected, as the boost from AI-related investment has outweighed the adverse effects of the Middle East conflict. In Australia, weak productivity growth continues to constrain potential growth and there are uncertainties about the extent and economic effects of the downturn in the housing market.

Decision

rewrittenSince the previous meeting, some of the upside risks to inflation are materialising. There have been further disruptions to global oil supply and recent data suggest that growth and inflation in Australia have been higher than expected. This inflation impulse is in addition to the effect of capacity pressures in the economy.Since the previous meeting, the data have confirmed that underlying inflation remains broadly based. Higher Capacity pressures appear a little tighter than previously estimated and there are indications that higher fuel prices have partially been are being passed through to prices of other goods and services. newInflation is now expected to remain above 3 per cent for the coming year and there is an increasing risk that higher inflation expectations will become embedded.

newThe Board is conscious of the period in which inflation has been too high. But Given the revised inflation is still too high outlook and the continuing upside risks, the Board judged that, in light of recent developments, that a further tightening in financial conditions is warranted to support a the return of inflation to target in a reasonable period. target. moved

The Board will continue to do what it considers necessary to bring inflation sustainably back to target, including increasing the cash rate target further if needed. target. Accordingly, the Board will be attentive to the data and the evolving assessment of the outlook and risks to guide its decisions. Monetary policy is well placed to respond to developments, and the Board is focused on its mandate to deliver price stability and full employment.

rewrittenToday’s policy decision was unanimous.Today’s policy decision was by majority: six members voted to increase the cash rate target by 25 basis points to 4.85 per cent; three members voted to leave the cash rate target unchanged at 4.60 per cent.