MNI BRIEF: October Hike Was "Finely Balanced" - RBA Minutes

The Reserve Bank of Australia said its decision to hike a smaller-than-expected 25bp at its October meeting was "finely balanced", according to the board minutes released on Tuesday. The Board said a hike of 25bp to 2.6% following four consecutive 50bp rises was warranted as the cash rate had increased "substantially" in a short period of time and the full effect of that increase "lay ahead", whilst recognising the benefits of a smaller increase while incoming domestic and global data were assessed. (See MNI STATE OF PLAY: RBA Taps Brakes, Sees Slower Pace Of Hikes)

The arguments for the 25bp hike rested on risks to global and domestic growth and the potential for inflation to "subside quickly." Board members noted that external inflationary pressures "might ease quickly given that the global outlook had deteriorated." The minutes noted that tighter policy and slower growth overseas could help reduce global inflationary pressure.

A reduction in the size of rate hikes might prompt an "unhelpful reaction" in inflation expectations and financial markets if the Bank's resolve to fight inflation was questioned, the minutes noted, but reiterated the RBA was data dependent, with decisions based on the outlook for inflation and the labour market.