A cash rate decision is taken by the Monetary Policy Board, which commenced on 1 March 2025 and has nine members: three ex officio and six non-executive members appointed by the Treasurer. Four of its eight annual meetings carry the quarterly Statement on Monetary Policy, and the forecasts in it assume a path for the cash rate itself. That path is not the Board's intention: the Reserve Bank states its technical assumptions "are not the staff's or the Board's views about the future path of these variables but are drawn from financial markets", specifically from overnight index swap pricing.
The document published alongside a rate decision contains a forecast for inflation, a forecast for unemployment, and a path for the cash rate. Three of those look like the same kind of object and one of them is not. The cash rate path is not a plan, not an intention, and not the staff's opinion. It is an input borrowed from the market, and reading it as a signal inverts what the document is doing.
Key Takeaways
- The Monetary Policy Board commenced on 1 March 2025 and has nine members, six of them non-executive appointees.
- Its meetings are timed to follow the key data releases, so each sitting has a new reading in front of it.
- The forecast cash rate path is drawn from overnight index swap pricing, and the Reserve Bank says explicitly that it is not the Board's view.
- The exchange rate is held at its level at the forecast cut-off, as a technical assumption rather than a prediction.
- The mandate is price stability and full employment, with a 2 to 3 per cent inflation target and a direction to aim at the midpoint.
- A published forecast showing inflation at target is conditional on the market path, not a commitment to deliver it.
Who is in the room
The governance changed recently and the change is more than cosmetic. Until the end of February 2025, one Reserve Bank Board carried both monetary policy and the organisation's own affairs. From 1 March 2025 those functions sit with separate bodies, and monetary policy belongs to the Monetary Policy Board.
Its composition is fixed by the framework rather than by convention. Three members are there by virtue of their office: the Governor, who chairs it, the Deputy Governor, who is deputy chair, and the Secretary to the Treasury. The other six are non-executive members appointed by the Treasurer. So a majority of the votes on any decision are cast by people who do not work for the institution taking it.
The calendar is built around the data, not the other way round
The Board meets eight times a year on dates published about twelve months ahead, and those dates are chosen to follow the release of the key inflation and activity statistics. The scheduling detail - the two-day structure, the announcement time, when minutes appear - is set out on the cash rate page. What matters for how a decision is made is the consequence of that ordering: each sitting has a substantive new reading in front of it, and a meeting is a scheduled event on a known calendar rather than a response to circumstances. The absence of a meeting in a given month carries no information at all.
The forecast round, and the assumption inside it
Four of the eight meetings are accompanied by the quarterly Statement on Monetary Policy, published at the same time as the decision. This is the forecast round, and it is where the technical assumptions live.
Producing a forecast for inflation and activity requires an assumption about the policy rate over the forecast period, because the two are not independent. There are three broad ways to supply one. Assume the rate stays where it is. Use the institution's own intended path. Or take what financial markets are pricing.
The Reserve Bank takes the third, and states the reasoning and the limitation together: its assumptions "are not the staff's or the Board's views about the future path of these variables but are drawn from financial markets". The specific instrument is the overnight index swap market, chosen because it is deep and liquid enough to yield a usable path. The method was changed in May 2024 and adjusted again in February 2026.
The exchange rate is handled the same way, held at its level at the forecast cut-off rather than projected.
Both of these are conventions for making a forecast tractable. Neither is a claim about the future. The practical consequence is worth stating plainly: if the published forecast shows inflation returning to target, that is a statement about what happens if the market-implied path is followed, not a commitment to follow it. A commentator who reads the embedded path as guidance has read a market price as a central bank statement.
What the Board is aiming at
The objectives are set out in an agreement between the Treasurer and the Board, most recently on 10 July 2025. It describes the overarching objective as promoting "the economic prosperity and welfare of the Australian people both now and into the future", pursued through price stability and full employment.
Price stability is given a number: consumer price inflation between 2 and 3 per cent, with the Board setting policy such that inflation is expected to return to the midpoint of that band. The midpoint direction is explicit in the 2025 agreement, so the target is not merely the band.
Full employment is given a definition rather than a number, and the definition is careful. The Board focuses on "sustained full employment, which is the current maximum level of employment that is consistent with low and stable inflation" - a level that is not directly observable and that moves with the structure of the labour market. Two objectives, one of which has a published target and one of which has to be estimated, is a fair description of why decisions are argued about.
Where to look next
The current target and its recent path are on the cash rate page, the cash rate entry defines the instrument, and the inflation rate and unemployment rate pages carry the two series the Board's objectives are written against. For how interest rate differences feed into the currency, see what drives the Australian dollar.
Sources
- Reserve Bank of Australia, Monetary Policy Board - the Board's commencement, its nine members and their basis of appointment, and the eight-meeting cadence timed to data releases
- Reserve Bank of Australia, 2024 Reserve Bank Board Meeting Dates - the reduction from eleven meetings to eight, the two-day structure, the 2.30pm announcement, the 3.30pm media conference and the quarterly Statement timing
- Reserve Bank of Australia, 2026 Monetary Policy Board Meeting Dates - dates published about twelve months ahead
- Reserve Bank of Australia, A Change to the Cash Rate Assumption Method for the Forecasts - the assumptions are drawn from financial markets rather than representing staff or Board views, the use of overnight index swap pricing, the exchange rate assumption, and the May 2024 and February 2026 changes
- Reserve Bank of Australia, Statement on the Conduct of Monetary Policy, 10 July 2025 - the overarching objective, the 2 to 3 per cent target and midpoint direction, the definition of sustained full employment, and the transparency commitments
Not financial advice, and not a recommendation of any product or institution. Reviewed by the Tradergy editorial team, September 2026.
Common questions
Who actually decides the cash rate?
The Monetary Policy Board, which commenced on 1 March 2025. It has nine members - three ex officio (the Governor as Chair, the Deputy Governor as Deputy Chair, and the Secretary to the Treasury) and six non-executive members appointed by the Treasurer.
Does the RBA forecast where it will put the cash rate?
No. The forecasts contain a cash rate path, but the Reserve Bank states that its technical assumptions "are not the staff's or the Board's views about the future path of these variables but are drawn from financial markets". The path is derived from overnight index swap pricing.
Why does the RBA use market pricing instead of its own view?
A forecast for inflation and activity needs some assumption about the policy rate, because the two are not independent. The Reserve Bank draws that assumption from the overnight index swap market, chosen because it is deep and liquid enough to yield a usable path, rather than publishing an intended path of its own.
What is the inflation target the Board works to?
The Statement on the Conduct of Monetary Policy agreed on 10 July 2025 sets consumer price inflation between 2 and 3 per cent, and directs the Board to set policy so that inflation is expected to return to the midpoint of that band.
If the forecast shows inflation returning to target, is that a promise?
No. It is a statement about what would happen if the market-implied cash rate path were followed, because that path is the assumption the forecast is built on. Reading it as guidance mistakes a market price for a central bank commitment.