Statement by Michele Bullock, Governor: Monetary Policy Decision - December 2023 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2023-12-05

Media Release
Statement by Michele Bullock, Governor: Monetary Policy Decision
5 December 2023
At its meeting today, the Board decided to leave the cash rate target unchanged at 4.35 per cent
and the interest rate paid on Exchange Settlement balances unchanged at 4.25 per cent.
Last month, the Board increased interest rates by 25 basis points, following a period of four months
where it had held interest rates steady. This decision reflected the Board’s view that progress in
bringing inflation back to the target range of 2 to 3 per cent was looking slower than
earlier forecast. While the economy has been experiencing a period of below-trend growth, it was stronger
than expected over the first half of the year. Underlying inflation was higher than expected at the time
of the August forecasts, including across a broad range of services. Conditions in the labour market had
eased but remained tight. Housing prices were continuing to rise across the country as was the number of
new mortgages. Given this, the Board judged that the risk of inflation remaining higher for longer had
risen and an increase in interest rates was therefore warranted to be more assured that inflation would
return to target in a reasonable timeframe.
The limited information received on the domestic economy since the November meeting has been broadly in
line with expectations. The monthly CPI indicator for October suggested that inflation is continuing to
moderate, driven by the goods sector; the inflation update did not, however, provide much more
information on services inflation. Overall, measures of inflation expectations remain consistent with the
inflation target. Wages growth picked up in the September quarter but this was expected given that it
captured the earlier Fair Work Commission decision on award wages. Wages growth is not expected to
increase much further and remains consistent with the inflation target, provided productivity growth
picks up. Conditions in the labour market also continued to ease gradually, although they remain tight.
Higher interest rates are working to establish a more sustainable balance between aggregate supply and
demand in the economy. The impact of the more recent rate rises, including last month's, will continue to
flow through the economy. High inflation is weighing on people’s real incomes and household
consumption growth is weak, as is dwelling investment. Holding the cash rate steady at this meeting will
allow time to assess the impact of the increases in interest rates on demand, inflation and the labour
Returning inflation to target within a reasonable timeframe remains the Board’s priority. High
inflation makes life difficult for everyone and damages the functioning of the economy. It erodes the
value of savings, hurts household budgets, makes it harder for businesses to plan and invest, and worsens
income inequality. And if high inflation were to become entrenched in people’s expectations, it
would be much more costly to reduce later, involving even higher interest rates and a larger rise in
unemployment. To date, medium-term inflation expectations have been consistent with the inflation target
and it is important that this remains the case.
There are still significant uncertainties around the outlook. While there have been encouraging signs on
goods inflation abroad, services price inflation has remained persistent and the same could occur in
Australia. There also remains a high level of uncertainty around the outlook for the Chinese economy and
the implications of the conflicts abroad. Domestically, there are uncertainties regarding the lags in the
effect of monetary policy and how firms’ pricing decisions and wages will respond to the slower
growth in the economy at a time when the labour market remains tight. The outlook for household
consumption also remains uncertain, with many households experiencing a painful squeeze on their
finances, while some are benefiting from rising housing prices, substantial savings buffers and higher
interest income.
Whether further tightening of monetary policy is required to ensure that inflation returns to target in a
reasonable timeframe will depend upon the data and the evolving assessment of risks. In making its
decisions, the Board will continue to pay close attention to developments in the global economy, trends
in domestic demand, 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 outcome.
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