Economic conditions are improving, both domestically and generally abroad. But with headline inflation still just below the target range of 2-3%, the RBA should hold its policy rate steady at this meeting. As conditions continue to improve, the RBA should begin increasing the policy rate back towards neutral. The “new normal” level of the neutral interest is yet to be determined. But it is likely lower than in the past. The RBA can adjust gradually to determine the appropriate level by seeing when a higher policy rate starts to put serious constraints on interest-sensitive expenditures.