Risk of inflation not returning to target in reasonable timeframe increased: RBA
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The news: The risk of inflation not returning to target within a reasonable timeframe has increased, according to Reserve Bank of Australia (RBA) monetary policy meeting minutes.
The context: The RBA pointed to the fact that underlying inflation had fallen very little over the prior year and in quarterly terms, GPD growth remained weak, the easing labour market, and prevailing volatility in financial markets as reasons for the increased timeframe.
The minutes said that RBA members agreed that monetary policy would need to be tighter than the implied path to bring inflation back to target within a reasonable timeframe.
The central bank said it chose not to raise the cash rate as the increase in return to target timeframe was not material and that financial market volatility did not have a material effect.
The RBA said holding the interest rate at the current level for a longer period than currently implied by market pricing might be enough to return inflation to target within a reasonable timeframe. It noted that the board would reassess this at future meetings.
The RBA said it was “unlikely” that the cash rate target would be reduced in the short term.
What they said: “... members decided that the case to leave the cash rate target unchanged at this meeting was the stronger one,” the minutes said.
“They agreed that doing so would best balance the risks to both inflation and the labour market, particularly in light of the prevailing uncertainties, market volatility and market expectations.”
“Members noted that it was appropriate to continue placing somewhat greater-than-usual weight on the flow of data, relative to the forecasts, when there were uncertainties about the persistence of supply shocks.”
The source: RBA minutes
