The RBA Board left its key rates unchanged today at 4.1% on the cash rate and 4% for Exchange Settlements. This was the 78th and final meeting overseen by Governor Philip Lowe, his tenure concluding the same way it started back in October 2016 with the Board holding a steady hand. Headwinds offshore and signs that the transmission of tighter monetary policy is in train through slower domestic growth, some easing in the labour market and declining inflation have kept the Board on hold for 3 meetings in succession now, a pause that looks likely to extend.
Today's decision statement from Governor Lowe was largely unchanged from the previous meeting in August. The overall tone is that a data-dependent Board is seeing enough progress in the domestic economy to warrant remaining on the sidelines, particularly with uncertainty around the Chinese economy clouding the outlook for global growth. As such, the RBA's central scenario for inflation to fall back to the 2-3% target - forecast for "late 2025" - with growth and employment still increasing remains intact. The current pace of wages growth (3.6% year-ended) is not seen as a constraint to returning to 2-3% inflation, although stronger productivity growth remains a key part of that assessment.
Reflecting the risk that inflation could remain more elevated than anticipated for longer, the Board has retained its tightening bias, noting that "some further tightening of monetary policy may be required...". The key uncertainties regarding inflation are how elevated services prices evolve and how wage and price settings adjust to slower growth. However, unless these factors materialise to prompt a revision of the inflation outlook, the Board seems set for an extended pause.