In response to the evolving outlook, the Reserve Bank Board has reduced the cash rate to low levels to improve the prospects for sustainable growth in the economy, with inflation rising to be consistent with the medium-term target.
At this point, our labour force would be fully employed, and the economy overall would be using all of its productive capacity.3 This is what we mean when we say the economy is operating at its potential output.4 The concept of potential output is important because inflation should be close to our 2 percent target when the economy is operating at that level.