Reporter's view: RBA in final mile to bring inflation back to target
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Reporter's view: Economics correspondent Jennifer Duke writes: "The Reserve Bank is in its final mile as it tries to get inflation back within its target band without doing too much damage to the labour market or the economy.
"Since the RBA board met, weaker than expected labour force figures have been released. In the US, though, markets were surprised by January’s higher than expected CPI read.
"This period is volatile and, globally, economists are alert to the risks of 'over-tightening' from central banks keeping rates too high for too long during this tricky period."
RBA considered rate rise during first meeting
The news: The Reserve Bank of Australia considered the case for a rate rise at its first monetary meeting of 2024 earlier this month on the basis that inflation still had some way to reach the 2% to 3% target band.
The numbers: While interest rates were kept on hold at 4.35% at the meeting a 25 basis point rise was considered, but the case to keep rates on hold was considered stronger. Some members noted it was possible conditions in the labour market were near full employment, which was the mandated focus of the central bank, though this was deemed unlikely overall.
The context: Today, the minutes from the RBA board’s first meeting of the year were released. Central banks around the world are expected by economists and markets to cut rates sooner rather than later but governor Michele Bullock tempered expectations after the February meeting by refusing to rule in or out another rate rise.
What they said: The board noted the markets are expecting rate cuts this year (of about 50 basis points) but fewer cuts are tipped than in other major economies. The board said the inflation outlook remained uncertain.
"In light of these observations, members considered whether to raise the cash rate target by a further 25 basis points at this meeting or to leave it unchanged," the minutes said.
“...Members observed that the risks around the outlook were broadly balanced; there was a risk that inflation proves more persistent but there was also a risk that consumer spending weakens more sharply than it had to date.
"Given these observations, it was reasonable to conclude that leaving the cash rate unchanged at this meeting, and continuing to monitor how risks to the outlook evolve, was the most appropriate course of action.”
The source: RBA minutes
