The minutes from RBA’s February meeting reinforced the central bank’s cautious approach to monetary easing, making it clear that the recent 25bps rate cut to 4.10% does “not commit them to further reductions” in subsequent meetings.
Policymakers acknowledged that inflation has been falling at a “somewhat faster pace than expected,” which helped ease concerns over upside risks. However, they stressed that the path to returning inflation to target while maintaining labor market gains is “not yet assured.” The Board ultimately deemed that the stronger case was to ease policy, given the downside risks to the economy.
Despite the decision to cut, RBA members debated the risks of “easing policy too soon”, recognizing that a premature policy shift could lead to resurgence in inflation.
They noted that if inflation proved “more persistent than expected,” holding the cash rate at 4.1% for an “extended period” or even tightening policy would be warranted.
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