MNI BRIEF: RBA Concerned On 'Inflation Psychology'-Minutes

The Reserve Bank of Australia raised interest rates in May because it was concerned that it would be more difficult to return inflation to the target range of 2% to 3% if it delayed action and this shifted “inflation psychology” in an enduring way, according to the minutes of the RBA’s May meeting released on Tuesday.

The central bank raised rates by 25 basis points for the first time in more than a decade to 0.35% at the meeting, and also considered rate hikes of 15 basis points and 40 basis points. “A move of this size would help signal that the Board was now returning to normal operating procedures after the extraordinary period of the pandemic,” the minutes said, SEE: MNI INSIGHT: RBA Comfortable With Stronger Wages Growth.

CPI inflation is at 5.1% and underlying inflation at 3.7%, and the RBA agreed that the conditions it for a rate rise had now been achieved.

The minutes showed that the RBA discussed waiting for more economic data, such as an updated wages price index, but also decided to move early because evidence from its liaison program on the strength of wage rises was clear. Wages data for the first quarter of this year will be released on Wednesday.