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.
00:57Now, 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,
01:08a bit more than our forecasts had anticipated. This has increased our confidence further.
01:15It's clear that higher interest rates have been working as anticipated,
01:18restricting economic activity and putting downward pressure on inflation.
01:23The board judges it's time to reduce a little bit of that restrictiveness,
01:27but we cannot declare victory on inflation just yet. It is not good enough for inflation to be
01:33back in the target range temporarily. The board needs to be confident that it is returning to
01:37the target range sustainably. One of the big questions we're grappling with now that inflation
01:43is easing is how the labour market is reacting. The board's strategy has been to bring inflation
01:51down while preserving the gains in the labour market. The judgment was that we could achieve
01:56this with a gradual easing in the labour market. But the strength of the jobs market has been
02:01surprising. Many indicators suggest that the labour market is tight and on some measures
02:07tightening further. While this is good news for job seekers, the board remains alert to
02:12the possibility that it is signalling a bit more strength in the economy, which could delay or
02:17stall the disinflation process. There's also a lot of uncertainty around the global outlook at
02:23the moment. One of the things we're cautious about is the possibility that policy unpredictability
02:29could lead to slower growth. But at the moment, it's too soon to tell. For these reasons, I want
02:36to be very clear that today's decision does not imply that further rate cuts along the lines
02:42suggested by the market are coming. As I noted, we've removed the cautionary increase that we did
02:48in November 23 to a level that we still see as restrictive. But the board needs more data and
02:55evidence that inflation is continuing to decline before making decisions about the future path of
03:01interest rates. The board is very alert to upside risks that could derail the deflationary process.
03:07I 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,
03:22we 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.