Minutes of RBA’s February 3 meeting revealed that while the case for holding rates was considered, members ultimately saw a stronger argument for raising the cash rate by 25 bps to 3.85%. The decision reflected growing concern that inflation pressures may prove more persistent than previously anticipated.
The Board judged that part of the recent rise in inflation likely reflects sustained “capacity pressure”, and that financial conditions were “currently not restrictive enough ” to return inflation to target within a reasonable timeframe. Data received since the previous meeting strengthened the view that, “without a policy response, inflation could remain persistently above target for too long.”
Members also acknowledged that risks to both price stability and full employment objectives had “shifted materially”. Staff forecasts show inflation staying above the midpoint of the target range for at least two more years, based on a market-implied path that assumes two additional hikes in 2026. If realized, that would extend the already prolonged period during which underlying inflation has exceeded target. At the same time, downside risks to the labor market were seen as having diminished.
Still, policymakers stressed “prevailing uncertainties meant it was not possible to have a high degree of confidence in any particular path for the cash rate.” The minutes suggest the tightening bias remains intact, but future moves will hinge squarely on incoming data, particularly inflation and labor market developments.
