Minutes from the RBA’s May meeting suggested policymakers are leaning toward a pause in June after acknowledging that interest rates are now likely in restrictive territory. The Board raised the cash rate by 25bps to 4.35% in an 8-1 vote, but members also judged that “financial conditions would probably be somewhat restrictive after this decision,” giving policymakers “space to see how the conflict in the Middle East develops and Australian households and businesses respond.”
The minutes highlighted growing concern over the stagflationary nature of the current oil shock. Members agreed that monetary policy “could not alter the near-term trajectory of inflation” because much of the recent price pressure was being driven by energy markets rather than domestic demand. At the same time, the Board acknowledged that “output growth would likely be lower than potential growth for some time,” signaling rising awareness that tighter policy and higher fuel costs are already slowing activity across the economy.
Even so, the RBA stopped short of signaling the tightening cycle was over. The Board reiterated it would “remain attentive to the data and the evolving assessment of the outlook and risks,” while emphasizing it would “do what it considers necessary” to return inflation to target and maintain full employment. The combination of restrictive policy, slowing growth, and still-elevated inflation risks suggests the RBA is now shifting into a more tactical “wait-and-see” phase rather than abandoning its broader tightening bias altogether.
