Media Conference Monetary Policy Decision

Good afternoon, everyone. So as you know, today the Board decided to leave the cash rate unchanged at 4.35%. It’s been at that level since November last year. But because monetary policy operates with a lag we think we need to be careful - think carefully about where we’re going. With inflation coming down and employment growing we think we remain on the narrow path. The Board’s been trying to bring inflation back to target in a reasonable timeframe while preserving the gains in the labour market. But underlying inflation currently remains too high and for some time now we’ve pointed out the risks on both sides. Because persistent inflation is so bad for the economy we’ve been alert to the upside risks on inflation but we’ve also been conscious of the downside risks. Economic data had been mixed and some indicators softening in line with our forecasts. That said on balance, some data are a little softer than expected. This had given the Board some confidence that inflationary pressures are declining but risks remain. The Board judges that monetary policy remains restrictive and is working as anticipated. We discussed today that perhaps some of those up side risks to inflation appear to have eased but they haven’t gone away. The Board still assesses that the level of aggregate demand is above the economy supply capacity even though that gap is closing. The Board will be looking to the data over the next month or so to see if the economy and inflation continue to evolve as expected. The Board needs to be confident that inflation is moving sustainably towards the target, and for this to occur we need to see more progress on underlying inflation coming down. Today, the Board discussed where we think the economy is going in 2025, what’s next and how to keep inflation coming down and employment growing. We discussed whether there’s something we might be missing or misunderstanding and the risks to our forecasts on both sides. What might we see in the coming months? Could unemployment start to climb sharply? We’re not anticipating that but it’s something we need to be alert to. How will consumption respond now that real disposable incomes are starting to rise again? And how will that impact underlying inflation? Could we see a smaller than expected outcome for underlying inflation in December quarter or might we get a surprise in the other direction? None of these things by themselves would necessarily lead us to the conclusion we need to change monetary policy settings but they may tell us something about the level of demand and supply in the economy, and where inflation and employment might be headed and how we might need to respond. The truth is that some inflation pressures remain and cost of living pressures remain a burden on all Australians. It is also important to note that prices are not going back to where they were before this high inflation. The high inflation over the past couple of years has permanently increased the price level. In fact, prices in September quarter ‘24 were 16% higher than they were three years earlier. That’s the extent of the inflation. And that’s hurt everyone, but particularly those on lower incomes and the more vulnerable. We haven’t had a sustained period of high inflation in Australia for more than 30 years. It’s not familiar to people. But it’s one of the key reasons why people are doing it tough and finding it harder to make ends meet. The RBA’s job, our mandate is to keep inflation between 2 and 3%, and to aim at the midpoint, 2.5%. And we use the cash rate which influences interest rates that households and businesses face, to achieve this by curbing the growth of demand across the economy. That’s because inflation is the result of demand for goods and services being higher than the ability of the economy to supply those goods and services. And we want to bring inflation down in a way that doesn’t cause a spike in unemployment. That’s the balancing act we are trying to get right, and it is a challenge. So thank you and I’m happy to take your questions.

David Chau from ABC News. Some of Australia’s leading economists have said the RBA should already have started cutting interest rates given the weakness in our economy. Do you think there is the risk the RBA might repeat mistakes of the past by moving too slowly?

So if we really thought we had things wrong we would have moved, David, I think is the answer to that. There’s difference of opinions on how to weight various signals that are coming from the economy. It’s true that some of the economic data has been a bit softer. And it is also true that some of the nominal side, in particular inflation, is remaining quite elevated. So you’ve got two sets of data which are telling you possibly different things. What I would suggest is that - and I’ve said this before - there is a difference between the rate of growth of the economy - and we all know it’s slowing, and the private sector in particular is slowing - and the level of demand. And we’ve been making this point for some time that growth exploded so strongly coming out of the pandemic that it got to very strong and very high level and the economy couldn’t supply the goods and services that people were demanding coming out of the pandemic. We’re still experiencing that. So we have to have a period of slower growth. But our forecast suggests that growth will start to pick up as real disposable incomes start to pick up over the coming year and that inflation will continue to come down. So we still think we’re on that path.

Thanks, Governor.

It’s been noted that - that the word vigilant has been removed and there is no statement about you are not ruling anything in, not ruling anything out. So some people are saying maybe the statement is a bit more dovish. Will we see the words in the minutes or is this quite a deliberate change in the comments and rhetoric that you’ve made.

Thanks, Glenda. It is deliberate and we wanted - the Board wanted to give the message that they have not - they have noticed some of the data that is a bit softer. Some of it is not. It is a bit mixed but some of it is on balance a bit softer than we had expected. So the Board wanted to convey that their opinion is and their views are evolving and they’re evolving as the data evolves. I think that’s what everyone would expect us to do. We’re not saying what we might do, but we are acknowledging that there is some softening and our forecasts do see inflation coming back down gradually over the next year. As each quarter goes by and our forecasts look like they’re basically - we’re in line with our forecasts, then that gives us a little bit more confidence in the future. So we’re not saying that we’ve won the battle against inflation yet but we’re saying we’ve got a little bit more confidence that things are evolving as we think in our forecasts. We’ve got to be aware things might move in either direction but I think that’s what people would expect of us.

The bank has misread perhaps the weakness in the economy that perhaps your model saw or the business liaison has let you know.

I think inflation has broadly come in as we expected. I don’t think we’ve missed that dramatically. There has been a sense in which consumption has recovered a little bit more slowly than we might have expected but the numbers we’re talking about here are relatively small. I think we basically feel that at the moment we’re pretty much in line with our forecasts. As I say, things could move either direction but at the moment we look pretty much in line.

Governor. Cecile Lefort, The Financial Review. In the minutes of the last month you mentioned that you wanted more than one quarter of good inflation print. Does it mean then that February - a move or easing in February is not on the table?

Well, I’m not going to give forward guidance, as you would expect me to say. I think in interpreting that statement about we need more than one quarterly, that didn’t mean we necessarily needed two or three quarterly inflation prints. It meant we needed more information about the economy than simply one inflation print. I think I clarified that at a speech at CEDA. But there is other information that is relevant as well to inflation, not just the quarterly inflation prints. I don’t want to give the impression we react to one number and one number only. Between now and February there is going to be a quarterly inflation print but there will also be another monthly one. They’re very volatile. There is going to be a couple of labour market indicators as well, some consumption indicators. So all these sorts of things are going to be important in thinking about how the economy is going towards the end of this year and, of course, our liaison going into early next year.