RBA minutes highlight debate over rate hike

RBA minutes from May 7 meeting reveal that a rate hike was considered but ultimately, the decision was made to hold cash rate target steady at 4.35%. The board emphasized that recent data indicated that “risks around inflation had risen somewhat,” acknowledging the considerable uncertainty and the difficulty in “ruling in or ruling out” future changes in interest rate.

The minutes detailed that raising the cash rate could be appropriate if the board believed that the staff forecasts were “overly optimistic” about the forces driving down inflation, leaving the balance of risks tilted to the upside. Additionally, a higher cash rate might be necessary even with ongoing weakness in aggregate demand if “other factors slowed the pace of disinflation.”

Conversely, the decision to hold the cash rate steady was based on the view that, although there had been significant updates on the economy since the last meeting, these updates were “not sufficient to warrant a change in the stance of monetary policy.” Inflation was still declining towards the target, and the new information “did not materially alter its trajectory.”

Full RBA minutes here.