SYDNEY, Aug 25 (Reuters) – The nine-member policy board of Australia’s central bank was divided on whether to raise interest rates at its August policy meeting, with “several” judging a hike might be necessary given upside risks to inflation.
Minutes of the Reserve Bank of Australia’s August board meeting released on Tuesday showed other board members felt the current cash rate of 4.35% was working to bring inflation down and that they could afford “some time” to see how the economy evolved.
The board eventually unanimously decided to hold rates steady after debating the case to hike for a fourth time this year. The minutes cautioned that incoming data needed to show further progress on bringing inflation back to its 2% to 3% target within a reasonable timeframe.
Several members judged it was quite possible that the upside risks to inflation would crystallise, requiring some further tightening, while others noted the potential for downside risks to offset that, the minutes showed.
“All members agreed that given the prevailing uncertainties, upcoming decisions would benefit from additional information that could strengthen their conviction about the outlook for inflation.”
The board has singled out the Middle East conflict, a global AI and data centre investment boom and poor productivity as key risks.
However, some judged the risks to be uncertain and the near-term evolution of the economy, with inflation cooling, the unemployment rate ticking up and the housing market weakening, afforded more time to leave policy unchanged.
The board also wanted more time to assess the judgment that monetary policy appeared sufficiently restrictive to bring inflation back to target, one of the arguments for keeping interest rates steady.
“Members noted that, by the following meeting, they would have received additional monthly reports on inflation and the labour market and the June quarter national accounts, while gaining additional information about trends in the housing market and the course of the conflict in the Middle East.”
There has been little progress to resolve the Middle East conflict and reopen the Strait of Hormuz. The U.S. on Monday unveiled an expansion of sanctions that it said would cut off Iran’s economic lifeline. Brent crude futures last traded at $92 a barrel, up sharply from a low of $70.14 in July.
Markets are pricing a slim 13% chance that the RBA could raise interest rates to 4.6% at its next meeting on September 28 and 29, while a move by February next year is about 67% priced in.
The case for raising interest rates also included the consideration that it might be appropriate to mitigate inflation risks pre-emptively and the trade-off involving in bringing down inflation down this time might be more gentler than in historical episodes, inflicting less damage on the labour market.
(Reporting by Stella Qiu, Editing by Wayne Cole)
Keywords: AUSTRALIA RBA/MINUTES
