Statement by Philip Lowe, Governor: Monetary Policy Decision - March 2023 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2023-03-07

Media Release
Statement by Philip Lowe, Governor: Monetary Policy Decision
7 March 2023
At its meeting today, the Board decided to increase the cash rate target by 25 basis points to
3.60 per cent. It also increased the interest rate on Exchange Settlement balances by
25 basis points to 3.50 per cent.
Global inflation remains very high. In headline terms it is moderating, although services price inflation
remains elevated in many economies. It will be some time before inflation is back to target rates. The
outlook for the global economy remains subdued, with below average growth expected this year and next.
The monthly CPI indicator suggests that inflation has peaked in Australia. Goods price inflation is
expected to moderate over the months ahead due to both global developments and softer demand in
Australia. Services price inflation remains high, with strong demand for some services over the summer.
Rents are increasing at the fastest rate in some years, with vacancy rates low in many parts of the
country. The central forecast is for inflation to decline this year and next, to be around
3 per cent in mid-2025. Medium-term inflation expectations remain well anchored, and it is
important that this remains the case.
Growth in the Australian economy has slowed, with GDP increasing by 0.5 per cent in the December
quarter and 2.7 per cent over the year. Growth over the next couple of years is expected to be
below trend. Household consumption growth has slowed due to the tighter financial conditions and the
outlook for housing construction has softened. In contrast, the outlook for business investment remains
positive, with many businesses operating at a very high level of capacity utilisation.
The labour market remains very tight, although conditions have eased a little. The unemployment rate
remains at close to a 50-year low. Employment fell in January, but this partly reflects changing seasonal
patterns in labour hiring. Many firms continue to experience difficulty hiring workers, although some
report a recent easing in labour shortages. As economic growth slows, unemployment is expected to
Wages growth is continuing to pick up in response to the tight labour market and higher inflation. At the
aggregate level, wages growth is still consistent with the inflation target and recent data suggest a
lower risk of a cycle in which prices and wages chase one another. The Board, however, remains alert to
the risk of a prices-wages spiral, given the limited spare capacity in the economy and the historically
low rate of unemployment. Accordingly, it will continue to pay close attention to both the evolution of
labour costs and the price-setting behaviour of firms.
The Board recognises that monetary policy operates with a lag and that the full effect of the cumulative
increase in interest rates is yet to be felt in mortgage payments. There is uncertainty around the timing
and extent of the slowdown in household spending. Some households have substantial savings buffers, but
others are experiencing a painful squeeze on their budgets due to higher interest rates and the increase
in the cost of living. Household balance sheets are also being affected by the decline in housing prices.
Another source of uncertainty is how the global economy responds to the large and rapid increase in
interest rates around the world. These uncertainties mean that there are a range of potential scenarios
for the Australian economy.
The Board’s priority is to return inflation to target. High inflation makes life difficult for people
and damages the functioning of the economy. And if high inflation were to become entrenched in
people’s expectations, it would be very costly to reduce later, involving even higher interest rates
and a larger rise in unemployment. The Board is seeking to return inflation to the
per cent target range while keeping the economy on an even
keel, but the path to achieving a soft landing remains a narrow one.
The Board expects that further tightening of monetary policy will be needed to ensure that inflation
returns to target and that this period of high inflation is only temporary. In assessing when and how
much further interest rates need to increase, the Board will be paying close attention to developments in
the global economy, trends in household spending and the outlook for inflation and the labour market. The
Board remains resolute in its determination to return inflation to target and will do what is necessary
to achieve that.
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