Statement by Philip Lowe, Governor: Monetary Policy Decision | Media Releases

At its meeting today, the Board decided to leave the cash rate target unchanged at 4.10 per cent
and the interest rate paid on Exchange Settlement balances unchanged at 4.00 per cent.

Interest rates have been increased by 4 percentage points since May last year. The higher interest
rates are working to establish a more sustainable balance between supply and demand in the economy and
will continue to do so. In light of this and the uncertainty surrounding the economic outlook, the Board
decided to hold interest rates steady this month. This will provide some time to assess the impact of the
increase in interest rates to date and the economic outlook.

Inflation in Australia has passed its peak and the monthly CPI indicator for May showed a further decline.
But inflation is still too high and will remain so for some time yet. High inflation makes life difficult
for everyone and damages the functioning of the economy. It erodes the value of savings, hurts household
budgets, makes it harder for businesses to plan and invest, and worsens income inequality. And if high
inflation were to become entrenched in people’s expectations, it would be very costly to reduce
later, involving even higher interest rates and a larger rise in unemployment. For these reasons, the
Board’s priority is to return inflation to target within a reasonable timeframe.

Growth in the Australian economy has slowed and conditions in the labour market have eased, although they
remain very tight. Firms report that labour shortages have lessened, yet job vacancies and advertisements
are still at very high levels. Labour force participation is at a record high and the unemployment rate
remains close to a 50-year low. Wages growth has picked up in response to the tight labour market and
high inflation. At the aggregate level, wages growth is still consistent with the inflation target,
provided that productivity growth picks up.

The Board remains alert to the risk that expectations of ongoing high inflation will contribute to larger
increases in both prices and wages, especially given the limited spare capacity in the economy and the
still very low rate of unemployment. Accordingly, it will continue to pay close attention to both the
evolution of labour costs and the price-setting behaviour of firms.

The Board is still expecting the economy to grow as inflation returns to the 2–3 per cent target range, but the path to achieving this
balance is a narrow one. A significant source of uncertainty continues to be the outlook for household
consumption. The combination of higher interest rates and cost-of-living pressures is leading to a
substantial slowing in household spending. While housing prices are rising again and some households have
substantial savings buffers, others are experiencing a painful squeeze on their finances. There are also
uncertainties regarding the global economy, which is expected to grow at a below-average rate over the
next couple of years.

Some further tightening of monetary policy may be required to ensure that inflation returns to target in a
reasonable timeframe, but that will depend upon how the economy and inflation evolve. The decision to
hold interest rates steady this month provides the Board with more time to assess the state of the
economy and the economic outlook and associated risks. In making its decisions, the Board will continue
to pay close attention to developments in the global economy, trends in household spending, and the
forecasts for inflation and the labour market. The Board remains resolute in its determination to return
inflation to target and will do what is necessary to achieve that.