Highlights
The Reserve Bank of Australia has published its quarterly Statement on Monetary Policy (SMP) after leaving policy rates on hold at 4.35 percent at its meeting today. The statement updates the RBA's inflation and growth forecasts and reiterates officials' commitment to returning headline inflation to their target range of two percent to three percent.
Since the RBA's previous assessment, published in early February, monthly data have shown little change in headline inflation, which was steady at 3.4 percent in January and February before picking up to 3.5 percent in March. Quarterly measures of inflation fell in the three months to March.
Reflecting these developments, officials have revised their near-term inflation forecasts higher. Headline inflation is now forecast to be 3.8 percent at end-2024 compared with the previous forecast of 3.2 percent. Further ahead, headline inflation is forecast to fall to 3.2 percent at mid-2025 and 2.8 percent at end-2025, little changed from the previous forecasts of 3.1 percent and 2.8 percent respectively. The forecast for the trimmed mean measure of inflation at end-2025 is unchanged at 2.8 percent
Today's statement therefore shows that the RBA expects both headline and underlying measures of inflation to return within its target range by the end of 2025. This forecast is based on an assumption that policy rates, in line with market expectations, have peaked at their current level and will remain around that level for the rest of the year before falling to around 3.9 percent by end-2025. This assumption about the trajectory of policy rates does not represent forward guidance from the RBA about the likely timing and scale of policy tightening. It does, however, indicate that officials believe that the rate trajectory priced in by markets will be enough to return inflation back to its target range over the next two years.
This suggests that officials may conclude that policy may be able to be lessened over the next forecast period, as is currently priced in by markets. Today's statement, however, concludes that a further rate increase cannot be ruled out, with officials highlighting that their priority is to ensure that inflation returns to target in a"reasonable timeframe".
Since the RBA's previous assessment, published in early February, monthly data have shown little change in headline inflation, which was steady at 3.4 percent in January and February before picking up to 3.5 percent in March. Quarterly measures of inflation fell in the three months to March.
Reflecting these developments, officials have revised their near-term inflation forecasts higher. Headline inflation is now forecast to be 3.8 percent at end-2024 compared with the previous forecast of 3.2 percent. Further ahead, headline inflation is forecast to fall to 3.2 percent at mid-2025 and 2.8 percent at end-2025, little changed from the previous forecasts of 3.1 percent and 2.8 percent respectively. The forecast for the trimmed mean measure of inflation at end-2025 is unchanged at 2.8 percent
Today's statement therefore shows that the RBA expects both headline and underlying measures of inflation to return within its target range by the end of 2025. This forecast is based on an assumption that policy rates, in line with market expectations, have peaked at their current level and will remain around that level for the rest of the year before falling to around 3.9 percent by end-2025. This assumption about the trajectory of policy rates does not represent forward guidance from the RBA about the likely timing and scale of policy tightening. It does, however, indicate that officials believe that the rate trajectory priced in by markets will be enough to return inflation back to its target range over the next two years.
This suggests that officials may conclude that policy may be able to be lessened over the next forecast period, as is currently priced in by markets. Today's statement, however, concludes that a further rate increase cannot be ruled out, with officials highlighting that their priority is to ensure that inflation returns to target in a"reasonable timeframe".
Definition
The Reserve Bank of Australia (RBA) publishes a quarterly Statement on Monetary Policy providing updated economic forecasts and a detailed assessment of economic conditions and prospects. The Statement is published four times a year in February, May, August and November.
Description
The Statement on Monetary Policy provides detailed information on the Reserve Bank of Australia’s assessment of economic conditions and prospects as well as updated forecasts. These inform policy decisions made by RBA offical at their monthly meetings. The Statement also contains analysis and data on various topics related to the Australian economy. The Statement allows investors to understand better the rationale for policy decisions and to form a judgement about the potential direction of policy.
