Minutes Give Details on 25bp/50bp Decision, 25bp Hikes Likely To Continue

The tone of the RBA minutes from the October meeting was in line with the meeting statement and Deputy Governor Bullock’s speech. They do provide more details on the balance of the decision between 25bp and 50bp. The RBA remains resolute in bringing inflation back to target and so there will be further hikes in the coming months, and currently it looks like the 25bp pace will continue.

• There are considerable uncertainties, especially surrounding consumption and the global economy, and so future moves continue to be data dependent. The Board is monitoring wage- and price-setting behaviour, the global economy and household spending.
• The decision in October between 25bp and 50bp rate increases was “finely balanced”.
  • The arguments in favour of 50bp included persistent inflation, upside inflation risks to inflation from the labour market, energy and rents, the risk that a smaller move could impact the RBA’s inflation fighting credibility, current level of rates “not high”, and consumption still resilient.
  • The case for a 25bp move included global and domestic growth risks, substantial tightening since May, lags involved and the full effect was yet to be felt, wage growth consistent with inflation target, pressures on household budgets and housing market, and buying time to assess the data given the high level of uncertainty.
• Interestingly, the RBA noted that pivoting would be “drawing out policy adjustments” which could “help to keep public attention focused for a longer period” on the Board’s determination to bring inflation back to target.
• See minutes here.