According to the minutes of the June meeting released on Tuesday, the Reserve Bank of Australia had contemplated increasing interest rates in response to higher-than-expected inflation. The bank expressed concerns about the narrowing path to stability.
Although the RBA maintained its interest rate at 4.35%, it adopted a more hawkish stance than anticipated by the markets, citing heightened worries about elevated inflation levels.
Inflation figures had exceeded expectations for three consecutive months, with core inflation consistently surpassing the RBA’s target range of 2% to 3% annually. This factor weighed heavily on the RBA’s deliberations regarding a potential interest rate hike.
Despite these considerations, the central bank opted to keep rates unchanged in June, as indicated by the meeting minutes. The RBA’s forecast still projected a gradual easing of inflation within the target range by 2026.
The minutes revealed that the RBA board members believed it was still feasible to achieve the goal of returning inflation to target levels without deviating significantly from full employment, although the margin for maneuver was decreasing.
The board remained vigilant against potential upward pressure on inflation and noted the relative resilience of the Australian economy, despite recent signs of moderation.
UBS analysts suggested that persistent inflation and strength in the labor market could prompt the RBA to raise interest rates by August. They also anticipated a delay in rate cuts to April 2025, instead of February.
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