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RBA keeps door open to another rate hike

Reserve Bank governor Michele Bullock delivered good news to borrowers earlier this month, but additional rate hikes could still be required, the meeting minutes warned. Picture: NCA NewsWire / Nikki Short

The Reserve Bank has warned another rate hike could be on the cards, while admitting the risks of resurgent price pressures have also escalated.

Fresh meeting minutes released following the RBA’s May 6-7 monetary policy meeting, released on Tuesday morning, noted inflation had eased more slowly than anticipated, creating “considerable uncertainty”.

“Members agreed that it was important to convey that recent data and other information had signalled that the risks around inflation had risen somewhat,” the meeting minutes read.

“Given this, members agreed that it was difficult either to rule in or rule out future changes in the cash rate target.”

While ultimately keeping the cash rate steady, RBA meeting minutes show the RBA again considered further tightening. Picture: NCA NewsWire / Nikki Short

May’s board meeting came after hotter-than-expected March quarter inflation figures took analysts by surprise, and stoked fears that the RBA would resume its aggressive run of interest rate increases.


However, even as the central bank considered the case for a rate hike at its May meeting, the RBA board ultimately kept the cash rate on hold at a 12-year high of 4.35 per cent, citing that recent data still pointed to an easing in inflation.

“While there had been notable updates on the state of the economy ... the updates had not been sufficient to warrant a change in the stance of monetary policy,” the minutes read.

“Inflation was still still declining towards the target and the recent information did not materially alter its trajectory.”

Data released since the May meeting appears to show that wages growth has peaked and the jobs market is beginning to loosen, prompting traders to ramp up their bets that interest rates will be cut sooner.

Markets ascribe a 50 per cent chance of a cut at the RBA’s December meeting, and are fully priced for a 25 basis point cut by April 2025.

Reacting to the minutes, UBS chief economist George Tharenou said the hurdle for the RBA to deliver additional tightening appeared “very high”.

“The Board now seems willing to allow inflation to remain above their target for a materially longer time period than previously indicated,” he said.

In separate staff forecasts released at the RBA’s Meeting, the central bank still expected inflation to return to its target band in the second half of 2025, but upgraded its projections over the year to June 2025.

RBA officials have now kept the cash rate on hold since November, balancing the risks of overdoing interest rate increases and sparking an economic downturn or allowing price pressures to rebound and holding above its 2 to 3 per cent target band.

As the RBA’s 13 rate increases since May 2022 work to slow the economy, separate data released on Tuesday morning showed households remained deeply pessimistic about the economy even as Treasurer Jim Chalmers unveiled another round of cost of living support.

Westpac’s Consumer Sentiment Index dipped a further 0.3 per cent in May as fears that persistently high inflation may require further tightening of monetary policy outweighed “well-received” measures for households in last week’s federal budget.

With income tax relief set to flow from July 1, Westpac showed households intended to bank approximately $18.6bn of the $23.3bn stage three tax cut package.

“Of the respondents who expect to receive a tax cut, 30 per cent plan to save all of it, while a further 50 per cent expect to save at least half,” Westpac senior economist Matthew Hassan said.