The Reserve Bank has revealed it was planning to raise the cash rate by 0.5 percentage points at its meeting this month, and that it never considered pausing the rate.
“The arguments for a 50 basis point increase stemmed from the concern that there had been a pattern of incoming prices and wages data exceeding expectations, and a risk that high inflation would be persistent,” the RBA’s minutes said.
“If it did persist, there would be significant costs, including higher interest rates and a larger increase in unemployment later on. Relatedly, members observed that the longer inflation stayed high, the greater the risk of price and wage expectations moving higher.”
The RBA decided on a single 0.25 percentage point rise, to 3.35 per cent.
“Members observed that, while underlying inflation had been higher than previously forecast, headline inflation was below earlier expectations. The forecast was for inflation to fall within the target range by the end of the forecast period in mid-2025,” the minutes said.
“Many households were facing tighter budgets and, in aggregate, real incomes were falling. There were plausible scenarios in which consumption growth was weaker than expected and inflation fell faster than forecast, as well as scenarios in which the opposite occurred.”
The RBA said it intends to bring inflation back within the 2–3 per cent target range.
“The path here is a narrow one and there are risks in both directions. The board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome,” the minutes said.
