In Brief
Inflation is still high and is falling more slowly than expected. Bringinginflation down to the 2–3percent target range is the Reserve Bank Boardshighest priority. The Boards decision to hold the cash rate supports inflation returning totarget.
Statement on Monetary Policy
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What is going on in the economy?
Inflation remains high and is falling more gradually than previously thought.
Global growth is subdued and inflation is above target in many countries.
In Australia, economic growth also remains slow. Inflation has been higherthan expected and labour market conditions have proven stronger thananticipated. Overall, higher interest rates have led people to cut back onspending. This is slowing economic growth and bringing demand into betterbalance with supply. Labour market conditions have eased but unemploymentremains low.
How do we see the economy developing?
Economic growth is expected to pick up gradually here and overseas.
Earlier interest rate rises and weak spending by consumers is likely toweigh on economic growth this year. Growth is expected to pick up graduallyin 2025 as a recovery in real incomes supports an increase in householdspending.
The labour market is expected to ease further.
The outlook for the labour market remains uncertain. Unemployment isexpected to increase more gradually than previously anticipated and wagesgrowth is expected to soften over the next couple of years.
Inflation is expected to reach the 2–3percent target range in the second half of 2025.
Inflation is expected to be higher in the near term than previously thoughtdue to the stronger labour market and higher petrol prices. But inflation isstill expected to return to the target range in the second half of 2025 andto reach the midpoint in 2026.
What did the Board decide?
At its May meeting, the Board decided to hold the cash rate.
The Board expects it will be some time before inflation is sustainably lowand stable. Keeping the cash rate at the current level is important to reduce inflationary pressures.
This decision supports the objectives of bringing inflation to target andthe labour market to levels consistent with full employment. The path toreturn inflation to target will be bumpy. How interest rates evolve fromhere is uncertain and the Board is watching developments in Australia andoverseas closely. The Board remains vigilant to the risk of continued highinflation and is not ruling anything in or out.
