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You are here: Home Media Releases 2023 Statement by Michele Bullock, Governor:
Monetary Policy Decision


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MEDIA RELEASE STATEMENT BY MICHELE BULLOCK, GOVERNOR: MONETARY POLICY DECISION

Number 2023-30
Date 7 November 2023

At its meeting today, the Board decided to raise the cash rate target by
25 basis points to 4.35 per cent. It also increased the interest rate paid on
Exchange Settlement balances by 25 basis points to 4.25 per cent.

Inflation in Australia has passed its peak but is still too high and is proving
more persistent than expected a few months ago. The latest reading on CPI
inflation indicates that while goods price inflation has eased further, the
prices of many services are continuing to rise briskly. While the central
forecast is for CPI inflation to continue to decline, progress looks to be
slower than earlier expected. CPI inflation is now expected to be around
3½ per cent by the end of 2024 and at the top of the target range of 2 to
3 per cent by the end of 2025. The Board judged an increase in interest rates
was warranted today to be more assured that inflation would return to target in
a reasonable timeframe.

The Board had held interest rates steady since June following an increase of
4 percentage points since May last year. It had judged that higher interest
rates were working to establish a more sustainable balance between supply and
demand in the economy. Furthermore, it had noted that the impact of the more
recent rate rises would continue to flow through the economy. It had therefore
decided that it was appropriate to hold rates steady to provide time to assess
the impact of the increase in interest rates so far. In particular, the Board
had indicated that it would be paying close attention to developments in the
global economy, trends in household spending, and the outlook for inflation and
the labour market.

Since its August meeting, the Board has received updated information on
inflation, the labour market, economic activity and the revised set of
forecasts. The weight of this information suggests that the risk of inflation
remaining higher for longer has increased. While the economy is experiencing a
period of below-trend growth, it has been stronger than expected over the first
half of the year. Underlying inflation was higher than expected at the time of
the August forecasts, including across a broad range of services. Conditions in
the labour market have eased but they remain tight. Housing prices are
continuing to rise across the country.

At the same time, high inflation is weighing on people’s real incomes and
household consumption growth is weak, as is dwelling investment. Given that the
economy is forecast to grow below trend, employment is expected to grow slower
than the labour force and the unemployment rate is expected to rise gradually to
around 4¼ per cent. This is a more moderate increase than previously forecast.
Wages growth has picked up over the past year but is still consistent with the
inflation target, provided that productivity growth picks up.

Returning inflation to target within a reasonable timeframe remains the Board’s
priority. 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 much more costly to reduce later, involving even
higher interest rates and a larger rise in unemployment. To date, medium-term
inflation expectations have been consistent with the inflation target and it is
important that this remains the case.

There are still significant uncertainties around the outlook. Services price
inflation has been surprisingly persistent overseas and the same could occur in
Australia. There are uncertainties regarding the lags in the effect of monetary
policy and how firms’ pricing decisions and wages will respond to the slower
growth in the economy at a time when the labour market remains tight. The
outlook for household consumption also remains uncertain, with many households
experiencing a painful squeeze on their finances, while some are benefiting from
rising housing prices, substantial savings buffers and higher interest income.
And globally, there remains a high level of uncertainty around the outlook for
the Chinese economy and the implications of the conflicts abroad.

Whether further tightening of monetary policy is required to ensure that
inflation returns to target in a reasonable timeframe will depend upon the data
and the evolving assessment of risks. In making its decisions, the Board will
continue to pay close attention to developments in the global economy, trends in
domestic demand, and the outlook 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 outcome.


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Phone: +61 2 9551 9720
Email: rbainfo@rba.gov.au


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