Minutes of RBA’s September 28–29 meeting revealed a strong case for raising interest rates, with policymakers giving substantially greater attention to arguments for tightening than those for leaving rates unchanged. Members cited three reasons for increasing the cash rate by 25bps to 4.60%: upside inflation risks were materializing, responding promptly could prevent more persistent price pressures, and existing policy might not be sufficiently restrictive. By contrast, the minutes stated that “members briefly considered the arguments in support of leaving the cash rate target unchanged.” Those arguments centered on weakening housing conditions, uncertainty surrounding the Middle East conflict, and the possibility that earlier tightening would weigh more heavily on economic activity than expected.
The Board’s growing concern was that domestic inflation pressures were proving more persistent than previously assessed, rather than simply reflecting higher imported costs. Stronger-than-expected July underlying inflation was judged more likely to reflect greater domestic capacity constraints than energy-related cost pass-through. Business liaison indicated widespread cost pressures and intentions to raise selling prices, while unit labour costs were increasing faster than consistent with the inflation target, largely because of weak productivity growth. Stronger-than-expected GDP growth and resilient labour demand reinforced concerns that “excess demand in the economy was greater than members had previously assessed.” Higher global energy prices and AI-related demand added further upside risks.
The minutes also revealed a clear preference for timely action, with members warning that “waiting for further confirmation of the outlook for inflation could be costly”, particularly as business inflation expectations showed signs of drifting higher. They also questioned whether the previous 4.35% cash rate was sufficiently restrictive, given the possibility that neutral interest rates had risen. While acknowledging that the “trade-off between inflation and full employment had deteriorated”, members unanimously supported the increase, judging that further restraint was needed to reinforce inflation expectations. The Board retained the option of additional tightening if required, without committing to another increase at a particular meeting.
Key Takeaways
- Strong case for September hike: RBA minutes outlined three arguments for tightening, while members “briefly considered” the case for holding. All nine members supported raising the cash rate by 25bps to 4.60%.
- Domestic inflation pressures more persistent: Stronger underlying inflation, widespread business cost pressures and weak productivity suggested excess demand was greater than previously assessed.
- Delaying tightening carried risks: Members warned that “waiting for further confirmation of the outlook for inflation could be costly,” particularly as business inflation expectations showed signs of rising.
- Existing policy may not be restrictive enough: The Board considered whether higher neutral interest rates meant the previous 4.35% cash rate was providing less restraint than assumed.
- Further tightening remains possible: The minutes reinforced the RBA’s inflation concerns but did not commit to another hike in November. Incoming economic data remain central to the next decision.
