Australia’s central bank considered raising rates in October, RBA minutes show

Australia’s central bank considered a rate hike of 25 basis points at its monetary policy meeting on Oct. 3, but eventually opted to hold its benchmark lending rate at 4.1%.

In minutes released by the Reserve Bank of Australia, board members noted that inflation remained well above its target of 2% to 3%, and was “expected to do so for some time.”

Services price inflation was still high, and rising fuel prices added to headline inflation.

On the other hand, board members acknowledged the Australian labor market had reached a “turning point” and that output growth had slowed.

“The tightening of monetary policy since May 2022 was still permeating through the economy and it would take some time for the full effects of this to be observed in the data,” the minutes showed.

In light of both sides of the argument, the RBA concluded there was not enough new information from financial markets or economic data to adjust its monetary policy in October.

A new set of staff forecasts and additional economic data will be released ahead of the next monetary policy meeting on Nov. 3, which will provide the board with more information.

Australia’s unemployment numbers for September will be out on Thursday, while consumer price index data will be announced on Oct. 25.

Australia has left the cash rate target unchanged for four consecutive meetings, after raising rates by 400 basis points since May last year to its highest level in 11 years.

The Australian dollar strengthened slightly on Tuesday, trading at 0.6347 against the greenback.

RBA board members reiterated their stance that further tightening of policy may be required should inflation prove more persistent than expected, saying that it has “a low tolerance” for a slower return of inflation to target than currently expected.

The RBA expects inflation to return to its target range of 2% to 3% by late 2025.

“Whether or not a further increase in interest rates is required would, therefore, depend on the incoming data and how these alter the economic outlook and the evolving assessment of risks,” the RBA said.

As of Oct. 17, data from LSEG indicated there was a 75% probability of the Australian central bank holding cash rate at its current level, with a 25% probability of a 25-basis-point hike.