Australia's central bank considered raising interest rates at its first meeting of the year but decided the case to stand pat was the "stronger one" as risks had eased that inflation wouldn't return to the board's 2-3% target within a reasonable timeframe.
The Reserve Bank left its benchmark rate at a 12-year high of 4.35% this month on cooling inflation and weaker-than-expected jobs and consumer spending reports, while signaling further monetary tightening is still possible, minutes of the Feb. 6 meeting showed Tuesday.
Board members discussed how the RBA staff's quarterly estimates were for both inflation and labor market conditions to ease further in a year or so, despite a technical assumption for no further hikes.
The minutes cover a meeting that was held as major central banks such as the Federal Reserve signaled that their tightening cycles were all but done, prompting financial markets to aggressively bet on the prospects of global policy easing.
In deciding to leave rates unchanged, RBA board members discussed how they'd communicate their decision and agreed that it was appropriate at this stage to not rule out any further rate hikes, the minutes showed.
That explains Governor Michele Bullock's relatively hawkish messaging since the Feb. 6 meeting, which allowed Australia to sidestep the frenzy of rate-cut speculation that erupted in the US and Europe and loosened financial conditions considerably in those economies.
The RBA said in the minutes that the case to raise rates centered on the risk that inflation might prove stickier than anticipated, in particular services prices. It added that the labor market is still probably too tight to be confident that inflation will be contained. Members noted that further policy tightening could hit economy-wide demand and help further cool consumer prices.
"Increasing the cash rate target now would not prevent the board from easing monetary policy if the economy were to weaken more sharply than envisaged," the minutes showed.
Australia's benchmark rate is lower than many other developed nations despite inflation being higher. Its 4.25 points of hikes in the current tightening campaign trail both the US and New Zealand's 5.25 points.
Most economists and money markets believe the RBA is all but done with rate hikes and the next move will be down, though an easing cycle is unlikely to begin in a hurry.
Source : Bloomberg
