Documents Show RBA Considered Impact Of 4.8% Rates

In documents released under a Freedom of Information request from Bloomberg, the details of the alternative scenarios mentioned in the minutes are now available. They date from March. Even with rates at 4.8% an unemployment recession was avoided.

• One scenario had the cash rate rising 25bp at every meeting until it reached 4.8%, which is considered by the RBA as 1pp above neutral. An alternative had rates rising 50bp until 4.8%. The final scenario had rates steady at 3.35%, the February level, until mid-2024. All options resulted in inflation reaching the target band by mid-2025 but the first two achieved it by late 2024.
• Unemployment would rise 1pp to 4.5%, the estimated NAIRU, if rates were 4.8%, but it would rise by less than 0.75pp within a year (Sahm recession).
• Each scenario was run using the RBA’s February forecasts. The May forecasts also show inflation returning to the top of the target band by mid-2025 and are based on a 3.75% rate assumption declining to 3% in two years.