RBA considered 50 bps hike in February meeting, minutes show

·2-min read

By Ambar Warrick

Investing.com--The Reserve Bank of Australia had considered raising interest rates by 50 basis points during its February meeting, the minutes of the bank’s meeting showed on Tuesday, as it struggled to bring down inflation from overheated levels.

The bank had eventually settled on a 25 basis point (bps) hike, raising rates to 3.35 bps. The minutes showed that members of the Reserve Bank Board saw uncertainty around the near-term economic outlook, and that regular meetings gave the bank enough scope to keep raising rates.

Still, the board agreed that more interest rate hikes are needed over the coming months to bring down inflation, which is now expected to come within the RBA’s 2% to 3% target range only by 2025.

Headline inflation reached an over 30-year high of 7.8% in the December quarter.

The RBA had hiked rates by a cumulative 300 basis points in 2022 as it struggled to control a post-COVID surge in prices. Disruptions in global supply chains also spurred increasing price pressures in the country, the RBA minutes said.

Policymakers were also unsure over the path of local inflation, given the increased uncertainty over global inflation trends.

Members of the RBA board opined that inflation had likely peaked in December, although this could only be confirmed in the coming months.

The board was wary of a coming slowdown in local economic growth, especially as the effects of monetary policy tightening and elevated inflation begin to be felt. While the Australian economy performed well in the second half of 2022, it is expected to run out of momentum in the coming months.

Even with a series of sharp rate hikes during 2022, the RBA had attempted to maintain a balance between curbing inflation and sustaining economic growth, aiming to keep the economy on an “even keel.”

But the bank has warned that the path to such a scenario is a narrow one, especially with interest rates set to rise further.

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