Statement on Monetary Policy – May 2024

In Brief

Inflation is still high and is falling more slowly than expected. Bringing inflation down to the 2–3 per cent target range is the Reserve Bank Board’s highest priority. The Board’s decision to hold the cash rate supports inflation returning to target.

What is going on in the economy?

Inflation remains high and is falling more gradually than previously thought.

Global growth is subdued and inflation is above target in many countries.

In Australia, economic growth also remains slow. Inflation has been higher than expected and labour market conditions have proven stronger than anticipated. Overall, higher interest rates have led people to cut back on spending. This is slowing economic growth and bringing demand into better balance with supply. Labour market conditions have eased but unemployment remains low.

How do we see the economy developing?

Economic growth is expected to pick up gradually here and overseas.

Earlier interest rate rises and weak spending by consumers is likely to weigh on economic growth this year. Growth is expected to pick up gradually in 2025 as a recovery in real incomes supports an increase in household spending.

The labour market is expected to ease further.

The outlook for the labour market remains uncertain. Unemployment is expected to increase more gradually than previously anticipated and wages growth is expected to soften over the next couple of years.

Inflation is expected to reach the 2–3 per cent target range in the second half of 2025.

Inflation is expected to be higher in the near term than previously thought due to the stronger labour market and higher petrol prices. But inflation is still expected to return to the target range in the second half of 2025 and to reach the midpoint in 2026.

What did the Board decide?

At its May meeting, the Board decided to hold the cash rate.

The Board expects it will be some time before inflation is sustainably low and stable. Keeping the cash rate at the current level is important to reduce inflationary pressures.

This decision supports the objectives of bringing inflation to target and the labour market to levels consistent with full employment. The path to return inflation to target will be bumpy. How interest rates evolve from here is uncertain and the Board is watching developments in Australia and overseas closely. The Board remains vigilant to the risk of continued high inflation and is not ruling anything in or out.