Peter Tulip
The monetary policy decision is relatively simple.
The outlook is for inflation to remain above the midpoint of the target, 2.5%, and for the unemployment rate to be below estimates of its sustainable rate, 4.5%.
A higher path for the cash rate would bring inflation and unemployment closer to their targets.
Central banks try to stabilise inflation for good reasons. Without a tightening in policy, a prolonged period of above-target inflation would be likely to increase inflation expectations, leading to a substantial increase in unemployment. The cost of reducing this risk is a modest increase in unemployment in the short run. An increase in the cash rate now would deliver lower more stable unemployment in the long run.
Updated: 17 June 2024/Responsible Officer: Crawford Engagement/Page Contact: CAMA admin