Australia (Commonwealth)_We wanted to take a moment to update you on the recent decision made by the Board regarding interest rates and the current state of the economy in Australia.
After careful consideration, the Board has decided to leave the cash rate target unchanged at 4.10 percent and the interest rate paid on Exchange Settlement balances unchanged at 4.00 percent. This decision comes after a series of interest rate increases totaling 4 percentage points since May last year. The intention behind these increases is to establish a more sustainable balance between supply and demand in the economy, and they will continue to serve this purpose.
While inflation in Australia has passed its peak and there has been a decline in the monthly CPI indicator for May, it is important to note that inflation still remains too high and will continue to do so for some time. High inflation poses challenges for everyone, affecting savings, household budgets, business planning and investment, as well as income inequality. It is the Board’s priority to bring inflation back within the target range in a reasonable timeframe.
Although the Australian economy has experienced a slowdown and the labor market conditions have eased, they still remain tight. While labor shortages have lessened, job vacancies and advertisements continue to be at high levels. The unemployment rate remains close to a 50-year low, and wages growth has picked up in response to the tight labor market and high inflation. The Board remains vigilant about the risk of expectations of ongoing high inflation leading to further price and wage increases.
We understand that the combination of higher interest rates and cost-of-living pressures has resulted in a significant slowdown in household spending. This has created uncertainty regarding the outlook for household consumption. We acknowledge that while housing prices are rising and some households have substantial savings buffers, others are facing financial pressures. Additionally, uncertainties in the global economy further contribute to the challenges we face.
It is possible that further tightening of monetary policy may be necessary to ensure that inflation returns to the target range within a reasonable timeframe. However, this decision to hold interest rates steady this month allows the Board more time to assess the state of the economy, economic outlook, and associated risks. Rest assured, the Board remains determined to return inflation to target and will take the necessary actions to achieve that goal.
The Board will closely monitor global economic developments, trends in household spending, and inflation and labor market forecasts. We value your continued support and will keep you informed of any significant updates or changes in the future.
