It's the first time since 2020 that the RBA has not raised the cash rate, effectively reversing the raise from November 2023.
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00:00The board decided today to cut the cash rate by 25 basis points to 4.1 percent.
00:06The cash rate has been at 4.35 percent since November 2023. At that time, in November 23,
00:14the upside risks to inflation had increased, so the board decided to raise the cash rate to 4.35
00:21from 4.1 percent to address those upside risks. Since then, inflation has fallen and recent data
00:29suggest it's eased a bit more than expected. Growth in private demand has also been quite weak
00:34and wage pressures have eased. The board therefore judged that it was appropriate to remove the
00:40cautionary raise undertaken in 2023. I've said many times that we need to see inflation moving
00:47sustainably towards our two to three percent target band before we ease rates. In December,
00:53we said we'd gain confidence that things were headed in the right direction.
00:58Now we're at a point where underlying inflation is at 3.2 percent and headline inflation is 2.4
01:03percent. Inflation has eased over the past three quarters and in the most recent quarter a bit more
01:09than our forecasts had anticipated. This has increased our confidence further. It's clear
01:16that higher interest rates have been working as anticipated, restricting economic activity and
01:21putting downward pressure on inflation. The board judges it's time to reduce a little bit of that
01:27restrictiveness but we cannot declare victory on inflation just yet. It is not good enough for
01:33inflation to be back in the target range temporarily. The board needs to be confident
01:37that it is returning to the target range sustainably. One of the big questions we're
01:43grappling with now that inflation is easing is how the labour market is reacting. The board's
01:48strategy has been to bring inflation down while preserving the gains in the labour market.
01:54The judgment was that we could achieve this with a gradual easing in the labour market.
01:59But the strength of the jobs market has been surprising. Many indicators suggest that the
02:04labour market is tight and on some measures tightening further. While this is good news
02:09for job seekers, the board remains alert to the possibility that it is signalling a bit more
02:15strength in the economy which could delay or stall the disinflation process. There's also a
02:21lot of uncertainty around the global outlook at the moment. One of the things we're cautious about
02:26is the possibility that policy unpredictability could lead to slower growth. But at the moment
02:32it's too soon to tell. For these reasons I want to be very clear that today's decision does not
02:39imply that further rate cuts along the lines suggested by the market are coming.
02:44As I noted, we've removed the cautionary increase that we did in November 23
02:50to a level that we still see as restrictive. But the board needs more data and evidence that
02:56inflation is continuing to decline before making decisions about the future path of interest rates.
03:02The board is very alert to upside risks that could derail the deflationary process.
03:08I know that some other central banks have cut interest rates quite sharply over the past year,
03:12but we have taken a different strategy to most. Our policy rate was not raised as much as many
03:17countries overseas. We judged that while inflation expectations remained anchored,
03:23we could take a bit longer to bring inflation back to the target band, but we could keep
03:27unemployment lower. We can be happy with the progress we've made, but we have to be careful
03:33not to get ahead of ourselves. The truth is that some inflation pressures remain
03:38and cost of living pressures are still front of mind for many Australians.
03:43The board is conscious that households with mortgages have had to adjust following interest
03:47rate increases since the pandemic, and the impact of high inflation over the past couple of years
03:52has permanently increased the price of goods and services. That's hurt everyone, but particularly
03:58those on lower incomes and the more vulnerable. The board will continue to look to the data
04:03to see if the economy and inflation continue to evolve as expected.