'Still too high' inflation remains a concern for RBA board
The Reserve Bank of Australia (RBA) considered raising interest rates earlier this month due to concerns that inflation might not return to its target range within a reasonable timeframe, according to minutes from the central bank’s latest monetary policy meeting.
The minutes revealed that while the RBA board ultimately decided to keep the cash rate steady, the possibility of an increase was actively discussed.
“Raising the cash rate target at this meeting could be appropriate if members judged that the risk that inflation would not return to target in a reasonable timeframe had materially increased,” part of the minutes read.
Several factors influenced the deliberations of the RBA board, chaired by central bank governor Michele Bullock (pictured above). Underlying inflation had fallen only slightly over the past year and remained above target, with the central projection now indicating that inflation would return to the target range somewhat later than previously expected.
The Minutes of the June 2024 Monetary Policy Meeting of the Reserve Bank Board has been released: https://t.co/XYOHfOTnlk
— Reserve Bank of Australia (@RBAInfo) August 20, 2024
The board noted that “the risk of inflation not returning to target within a reasonable timeframe had increased,” citing the slow pace of disinflation, stronger-than-expected domestic demand, and a wider-than-anticipated gap between aggregate demand and supply.
Despite these concerns, the RBA decided that the arguments for holding the cash rate steady outweighed those for an immediate increase. The minutes of the latest Monetary Policy Meeting
highlighted that while inflation was still too high, disinflation was occurring across a broad range of price categories, and inflation was forecast to decline further as labour market conditions eased. Additionally, members acknowledged the “considerable uncertainty” surrounding the inflation outlook and the risks to the labour market.
The RBA also noted that the current cash rate might need to remain unchanged for longer than previously anticipated to bring inflation back to target. The minutes emphasised that the central bank remains committed to returning inflation to target and will continue to monitor economic data closely.
“Monetary policy will need to be sufficiently restrictive until members are confident that inflation is moving sustainably towards the target range,” the minutes indicated.
The board reiterated that future decisions on the cash rate will depend on evolving economic conditions, with a focus on inflation risks. The RBA made it clear that it is prepared to adjust policy as necessary to achieve its inflation objective.
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