RBA – a material rise in inflation expectations could require significantly higher rates

Reserve Bank of Australia June meeting minutes. Headlines via Reuters:

• The RBA Board judged the case for holding rates steady stronger than for hiking
• Needed to be
  vigilant to upside risks to inflation, data suggested upside risk for
  May CPI
• Economic uncertainty
  meant it was difficult to rule in or out future changes in policy
• Recent data not
  sufficient to change outlook for inflation returning to target by
  2026
• Judged still
  possible to bring inflation to target while keeping employment gains
• Board saw downside
  risks to the labour market, vacancy rates pointed to weakness
• Unemployment rate
  could rise quickly as it had done in the past
• Continued rapid rise
  in business insolvencies would be negative for jobs
• Wise to give little
  weight to upward revisions to household consumption
• Q1 GDP growth had
  been very weak, wage growth looked to have peaked
• Hike might be needed
  if board judged policy was not “sufficiently restrictive”
• August forecast
  round would allow staff to carefully judge spare capacity in economy
• Judgements about
  spare capacity were very uncertain, should be treated with caution
• Inflation
  expectations still anchored, but market premia had drifted higher
• A material rise in
  inflation expectations could require significantly higher rates

Full text is here.

There isn’t much in these Minutes to sway the case for a move to hike rates at the next meeting, in August. The August meeting will be right after the next official reading on quarterly CPI, due July 31.

The headline I popped on the post is probably the most interesting point given the inflation expectations data we had earlier:

• Australian inflation expections have jumped their highest in 9 months

Those expectations, from the weekly survey, won’t carry a huge amount of weight in RBA discussions, but they won’t be ignored either.

I think the TL;DR on these minutes is we have to wait for the CPI report on July 31 for a guide to what the Bank will do at its August, on the 5th and 6th, meeting.

AUD is up a touch, not a lot of movement during the session here following the drop on Monday, US time:

—

From the day of the statement:

• RBA leaves cash rate unchanged at 4.35%, as expected
• RBA’s Bullock: We did not consider the case for a rate cut today
• RBA’s Bullock: We need a lot to go our way to bring inflation back to range

This article was written by Eamonn Sheridan at www.forexlive.com.