The board agreed that additional rate hikes were likely in the coming months
The Reserve Bank of Australia’s minutes have been released and they state that the board agreed that additional rate hikes were likely in the coming months.
Reuters reported that ”Australia’s central bank, startled by the risk that inflation could prove stickier than previously thought, abandoned all thought of pausing at its February policy meeting and signalled more rate hikes would be needed in the months ahead.”
”Minutes of the Feb. 7 policy meeting out on Tuesday showed the Reserve Bank of Australia’s (RBA) Board only discussed two options – hiking by 50 basis points or 25 bps.”
”A pattern of upward surprises on inflation and wages had argued for the larger move, the minutes showed.The Board settled on a quarter-point hike, which brought the cash rate to a fresh decade-high of 3.35%, noting an uncertain global outlook, the flexibility it has through the monthly meetings, and the already substantial increase in rates so far.”
Board considered hike of 25bp or 50bp, a pause was not an option.
Arguments in favour of both options but board agreed case for 25bp was stronger.
Households facing tighter budgets, falling real incomes argued for 25bps.
Monthly meetings allowed for frequent adjustments, rates already risen substantially.
Pattern of upward surprises on inflation, wages argued for 50bp move.
Longer inflation stayed high, greater the risk of price-wage spiral.
Board agreed further rate increases would likely be needed over the months ahead.
Board noted inflation forecasts based on technical assumption of 3.75% cash rate.
Board noted cash rate was still lower than in many other developed nations.
Board will do what is necessary to return inflation to target.
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About the RBA minutes
The minutes of the Reserve Bank of Australia meetings are published two weeks after the interest rate decision. The minutes give a full account of the policy discussion, including differences of view. They also record the votes of the individual members of the Committee. Generally speaking, if the RBA is hawkish about the inflationary outlook for the economy, then the markets see a higher possibility of a rate increase, and that is positive for the AUD.