Monetary Policy Board Announces Key Policy Decision
The Monetary Policy Board has made a significant decision regarding the cash rate target, raising it by 25 basis points. The new target is set at 3.85 percent. This marks a crucial step in response to recent inflation trends and economic conditions.
Inflation Trends and Economic Conditions
Inflation has experienced a notable decline since peaking in 2022. However, it has surged again in the latter part of 2025, prompting the Board to take action. The Board believes that some of this inflation increase stems from growing capacity pressures in the economy.
Key Factors Influencing Policy Decision
- Demand Dynamics: There has been a robust increase in private demand, driven by higher household spending and investment.
- Housing Market Activity: Prices and activities in the housing sector continue to rise.
- Financial Conditions: Financial conditions have eased in 2025, creating uncertainty about their restrictiveness.
- Available Credit: Credit remains easily accessible for both households and businesses.
Labour Market Insights
Labour market conditions have shown some tightness, aligning with the overall economic momentum. The unemployment rate is slightly lower than expected, indicating stable conditions. Measures of labour underutilisation are also remaining low.
Wages and Cost Dynamics
The Wage Price Index has cooled from its previous peak, but overall wage growth continues to be strong. High growth in unit labour costs adds to inflationary pressures.
Outlook and Future Considerations
The Board acknowledges uncertainties in the domestic economic outlook and the implications of monetary policy. If demand growth exceeds expectations and supply capacity remains limited, further capacity pressures may arise.
Global Economic Impacts
Significant uncertainties persist in the global economy. Despite this, Australia’s economy has not been adversely affected, with growth from major trading partners exceeding expectations.
Conclusion of the Board’s Decision
The recent data illustrates that inflationary pressures intensified significantly in the second half of 2025. Although some are attributed to temporary factors, the Board acknowledges the rapid increase in private demand and tighter labour market conditions.
In light of these evaluations, the Board unanimously decided to increase the cash rate target. It aims to ensure price stability and achieve its objectives for full employment. Moving forward, the Board will continue to monitor economic indicators and global trends closely.
