During today’s board meeting, the decision was made to keep the cash rate steady at 3.60%.
Inflation has been picking up lately.
Inflation has decreased from its peak last year, mainly due to higher interest rates helping to balance aggregate demand and supply. However, it has seen a recent uptick. The trimmed average inflation was 1.0% for the September quarter and 3.0% year-over-year, up from 2.7% in the prior quarter. This was notably higher than what many analysts expected in August. The headline inflation rose to an annualized 3.2% in the September quarter, much of which was anticipated due to the removal of electricity rebates in several states.
The Board concluded that part of the rise in underlying inflation during the September quarter could be attributed to temporary factors. The central forecast for November is based on the assumption of one more rate cut in 2026, with underlying inflation projected to exceed 3% in the upcoming quarters before settling at 2.6% in 2027.
While domestic economic activity is recovering, the future is still uncertain.
Consumption data indicates a continued recovery in private demand, which was already visible in the June quarter. The housing market is robust, reflecting the impact of recent interest rate reductions. Housing prices are on the rise, and construction costs are beginning to increase again after a period of stagnation. Credit remains readily accessible for both households and businesses.
Several indicators show that, despite recent easing, the labor market appears somewhat tight. Employment growth has lagged slightly behind expectations, with the unemployment rate increasing to 4.5% in September from 4.3% in August. Nevertheless, indicators of labor underutilization are low, job openings are plentiful, and many companies report difficulty in finding sufficient labor. Wage growth has slowed from its peak, but productivity growth is weak, and unit labor costs continue to rise.
The outlook for domestic economic activity and inflation is uncertain, influenced by both local and international factors. Domestically, if the recovery in private demand continues at a pace greater than expected, it could intensify labor demand, straining production capacity and making it easier for companies to pass cost increases onto consumers. Conversely, the improvement in private demand could also stall.
On a global scale, while uncertainty remains high, its effect on growth and trade has been minimal so far, with many forecasters adjusting their short-term global growth forecasts upward. However, trade policy changes are likely to impact global growth negatively over time. Beyond tariffs, broader geopolitical risks continue to pose challenges to the global economy. All these elements may pressure aggregate demand growth and lead to tougher labor market conditions domestically.
There are also uncertainties regarding the evaluation of monetary policy’s restrictiveness, the delayed impacts of recent monetary easing, the balance between aggregate demand and potential supply, labor market conditions, and productivity growth projections. These uncertainties present mixed risks to both inflation and employment forecasts.
Ensuring price stability and full employment is a priority.
Recent inflation data indicates that some pressures might remain in the economy. As private demand strengthens and labor market conditions seem somewhat tight, the Board determined that keeping the cash rate steady was appropriate at this time. Financial conditions have improved since early in the year, but the effects of the cash rate cuts will take a while to fully manifest. Given this, along with evidence that inflation might be becoming more entrenched, the Board deemed it wise to remain cautious and adapt its outlook as new data come in. The Board is aware of the growing uncertainty about the direction of the economic outlook.
The Board plans to stay informed by monitoring evolving data and assessments to guide its decisions. Key areas of focus will include trends in the global economy, domestic demand patterns, and projections for inflation and the labor market. The Board is committed to achieving price stability and full employment and is prepared to take the necessary actions to attain that goal.
Decision
The policy decision made today was unanimous.
