RBA minutes: Vigilant to upside inflation risks, policy must remain restrictive

The Reserve Bank of Australia minutes indicate that the board remains vigilant to upside inflation risks and believes policy needs to remain restrictive.

• The board saw no “immediate need” to change the cash rate.
• It is not possible to rule anything in or out regarding future changes in the cash rate.
• Forecasts are based on the technical assumption that the cash rate will stay steady until mid-2025.
• The board considered what might warrant a future change in the cash rate or a prolonged steady period.
• The board discussed scenarios where policy would need to stay restrictive for longer or tighten further.
• The supply gap might be wider than assumed, necessitating tighter policy.
• Rates might need to rise if the board judged that policy was not as restrictive as assumed.
• The board has “minimal tolerance” for inflation above forecasts.
• The board would need more than one good quarterly inflation report to justify a rate cut.
• The board considered scenarios where a rate cut would be justified, including weak consumption.
• A sharp deterioration in the labor market or forward-looking data could require an easing of policy.
• The board discussed risks from abroad, including U.S. economic policy and China’s stimulus measures.
• The outlook for U.S. policy is uncertain, with some scenarios indicating significantly lower global growth and higher inflation.
• The outlook for China has been upgraded thanks to stimulus, though the impact on Australia could still be modest.

The full text is here:

• Minutes of the Monetary Policy Meeting of the Reserve Bank Board

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While the RBA looks set to remain on hold in December (and beyond) the minutes do indicate the Bank is considering what indications it needs to see to prompt easing. For example (from the points above):

• The board would need more than one good quarterly inflation report to justify a rate cut.
• The board considered scenarios where a rate cut would be justified, including weak consumption.
• A sharp deterioration in the labor market or forward-looking data could require an easing of policy.

Something to keep an eye out for.

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