At today's meeting, the Board decided to maintain the cash rate target at 4.35 percent and the interest rate paid on exchange settlement balances at 4.25 percent.
Inflation continues to moderate but remains elevated.
Inflation continued to decline during the December quarter. Despite this progress, inflation remains high at 4.1%. Goods price inflation was below the RBA's November forecast. It continues to fall, reflecting the easing of disruptions to global supply chains and moderating domestic demand for goods. However, services price inflation has fallen at a more moderate pace, in line with the RBA's previous forecast, and remains high. This is consistent with continued excess demand in the economy and strong domestic cost pressures on both labour and non-labour inputs.
Rising interest rates serve to establish a more sustainable balance between aggregate demand and supply in the economy. Labor market conditions therefore continue to ease moderately, but remain weaker than would be consistent with sustained full employment and the inflation target. Wage growth has accelerated, but is not expected to rise significantly further, assuming productivity growth rises to its long-run average, and remains consistent with the inflation target. Inflation continues to weigh on people's real incomes, and household consumption growth is weak, as is housing investment.
The outlook remains very uncertain.
Despite some encouraging signs, the economic outlook remains uncertain and the Governing Council continues to pay close attention to inflation risks. Inflation is expected to return to the target range of 2 to 3 percent in 2025 and to the midpoint in 2026. Services price inflation is expected to decline gradually as demand moderates and labor and non-labor cost growth moderates. Employment is expected to continue to grow moderately, while the unemployment rate and the broader underutilization rate are expected to rise slightly further.
There are encouraging signs in commodity price inflation abroad, but services price inflation remains persistent and there is a risk that the same will occur in Australia. High levels of uncertainty also remain about the outlook for the Chinese economy and the impact of the conflicts in Ukraine and the Middle East. Domestically, there is uncertainty about the delayed effects of monetary policy, how corporate pricing and wages will respond to slowing economic growth in a period of excess demand, and continued tight labour markets. The outlook for household consumption is also uncertain.
Getting inflation back on target is the top priority.
Returning inflation to its target within a reasonable timeframe remains the Governing Council's top priority. This is consistent with the Reserve Bank of Australia's mandate of price stability and full employment. The Governing Council needs to be confident that inflation is moving sustainably towards its target range. To date, medium-term inflation expectations have been consistent with the inflation target and it is important that this continues to be the case.
Recent data indicate that inflation is easing but remains elevated. The Governing Council expects that it will be some time before inflation is sustainably within the target range. The trajectory of interest rates that will ensure that inflation returns to the target within a reasonable time frame will depend on evolving data and risk assessments, and further increases in interest rates cannot be ruled out. The Governing Council will continue to pay close attention to developments in the global economy, developments in domestic demand, and the outlook for inflation and the labor market. The Governing Council remains firm in its commitment to return inflation to its objective and will do what is necessary to achieve that outcome.