For this reason, many monetary policy rules, such as the well-known Taylor rule, incorporate an estimate of the neutral real interest rate as a critical parameter along with the target rate of inflation.4 Although the neutral rate is a critical benchmark for monetary policy, it changes over time in response to important changes in economic conditions, necessitating corresponding adjustments in monetary policy in order to restore the economy to full employment.
Currently the market assumes that the cash rate is likely to remain unchanged for at least the next 12 months, and then rise only very slowly beyond that. The forecasts also assume that the exchange rate and oil prices remain at their current levels.