CANBERRA: Australia’s central bank has opted to keep its key rate unchanged on signs that elevated inflation is gradually easing and the labour market beginning to loosen, giving it scope to assess incoming data for any signs that upside risks may “crystallise”.
The Reserve Bank of Australia’s (RBA) minutes of its Aug 10 to Aug 11 meeting showed the board discussed at length the case to raise or hold the cash rate, deciding that it was best to pause and wait for additional information to get a better handle on the trajectory of inflation.
It pledged to remain alert and ready to act if needed.
“Members agreed that the prevailing cash rate appeared to be working to bring the economy gradually back into balance,” the RBA said in the minutes released yesterday in Sydney.
“The board concluded that, in this light, there was time to assess the incoming data for signs of the risk to the inflation forecast materialising.”
The RBA left rates unchanged at 4.35% two weeks ago, its second straight pause, after hiking three times between February and May to curb prices.
Australia is grappling with one of the highest inflation rates among its peers, and was struggling even before a global energy shock set off by the US-Iran war.
“The case to hike is quite high still. Again it’s really data-dependent,” said AMP Economist My Bui.
“The discussion really shows you that they don’t know,” she said, adding “it really depends on what the inflation numbers for the quarter come out to be”.
Bui highlighted a “fun fact” in the minutes. “They mention inflation 50 times and they mention the labour market 12 times, so that really tells you where their focus is.”
The minutes showed a solid debate on the cases to hike or hold, with the advantages of acting preemptively being to gain greater confidence inflation would return to the 2% to 3% target.
Others noted that data had come in a tad softer than anticipated.
“Several members judged that it was quite possible that the upside risks to the inflation forecast would crystallise, requiring some tightening,” the minutes said.
“Other members noted the potential for downside risks to offset them.”
A majority of economists predict the RBA board will stand pat for the remainder of the year, while money markets are pricing about a 60% chance of another hike by year-end.
For the RBA’s Sept 28 to Sept 29 policy meeting, traders expect the central bank will leave its key rate unchanged.
The RBA referred to next month’s gathering in yesterday’s minutes.
“Members noted that, by the following meeting, they would have received additional monthly reports on inflation and the labour market and the June quarter national accounts, while also gaining additional information about trends in the housing market and the course of the conflict in the Middle East,” the central bank said.
Monthly data due today is expected to show core inflation edged down to 3.5% in July.
It remains well above the 2.5% midpoint of the RBA’s target band, a level the central bank only expects to achieve by early 2028.
Still, signs of cooling in the labour market give policymakers scope to stay on the sidelines.
Rising unemployment in July suggests the jobs market, which the RBA has described as “a little tight”, may loosen in the period ahead. — Bloomberg
