More rate increases may be needed to stabilise inflation, but dependent on economy, RBA says
More interest rate increases “may be required” to drive down Australia’s soaring inflation, but any further hike would be “dependent on how the economy evolves”, minutes from the RBA’s May meeting have revealed.
The central bank said it was committed to doing “what is required to bring inflation back to target” but emphasised “that it is still seeking to traverse the narrow path”.
“Members agreed that further increases in interest rates may still be required, but that this would depend on how the economy and inflation evolve,” the minutes, published today, said.
The decision to hike rates in May, after a pause in April, ultimately came down to fears of further inflation risks due to weak productivity growth as well as faster-than-expected rent increases.
“In reaching their decision, members acknowledged that there were still significant uncertainties surrounding the economic outlook, particularly for household consumption,” the minutes said.
“But, on balance, given the Board’s strong commitment to price stability and the importance of ensuring that inflation expectations remain anchored, members judged that a further increase in interest rates was warranted.”
The RBA said “in weighing up the two options”, the board recognised the “arguments were finely balanced” but judged it was “appropriate to increase interest rates at this meeting”.
“The information available over the prior month had confirmed that the labour market remained tight and that inflationary pressures were significant,” the minutes said.
“That information also pointed to upside risks to the outlook for inflation.
“If these risks materialised, they would further delay the return of inflation to target, with the prospect of a damaging shift in inflation expectations.
“Further, members noted that the forecasts presented at the meeting were predicated on a technical assumption for the path of the cash rate that involved one further increase.”
