Statement on Monetary Policy – February 2024

In Brief

Inflation is falling but is still high. It is important to bring inflation down because high inflation hurts all Australians. The Board’s interest rate decision supports the gradual return of inflation to the midpoint of our 2–3 per cent target range.

Read more in the Overview

What is going on in the economy?

Overall demand is still greater than supply, but the economy is moving towards a better balance.

Monetary policy is working to slow growth in demand. High inflation, higher interest rates and tax payments have led people to cut back on spending. Labour market conditions are easing but are still tight relative to full employment.

The overall assessment is that demand has remained above the economy’s capacity to supply goods and services, which continues to put upward pressure on inflation.

How do we see the economy developing?

Economic growth is expected to slow here and overseas.

Growth is expected to remain low over the next year. As inflation comes down and real incomes start to rise, consumption growth is expected to come back to pre-pandemic levels over the next couple of years.

Labour market conditions are expected to ease further.

Labour market conditions are expected to continue to ease, to be broadly consistent with sustained full employment and inflation at target, on the assumption that productivity growth increases to around its long-run average.

Inflation is expected to decline to the 2–3 per cent target range in 2025 and to reach the midpoint in 2026.

Services inflation is still high and is expected to decline only gradually. Goods price inflation has declined faster than expected, both here and in a number of other economies. This is due to softer demand and the easing of pandemic supply disruptions that have flowed through to prices.

What did the Board decide?

Based on their assessment of the current conditions in the economy and the outlook, the Board decided to leave the cash rate unchanged.

Inflation is still high, but we are making progress towards a better balance between supply and demand in the economy. While there are encouraging signs, the economic outlook is uncertain and the Board expects it will be some time before inflation is sustainably low and stable.

The Board’s decision today balances the objectives of bringing inflation down while also preserving the gains in employment. The Board’s future decisions will depend upon the data and evolving risks, and a further increase in interest rates cannot be ruled out.