At its February policy meeting, Australia’s central bank, alarmed by the possibility that inflation could prove more persistent than anticipated, abandoned any notion of halting and signaled that additional rate hikes would be required in the coming months.
Tuesday’s release of the minutes from the Reserve Bank of Australia’s (RBA) policy meeting on February 7 revealed that just two options were discussed: an increase of 50 basis points or 25 basis points. This was a significant turnaround from December, when it had considered remaining unchanged.
The minutes revealed that a pattern of inflation and wage increases that exceeded expectations had argued for the greater hike.
The Board decided on a quarter-point increase, bringing the cash rate to a new decade-high of 3.35 percent, citing an uncertain global outlook, the flexibility it has through monthly meetings, and the already large increase in rates to date.
Since last May, interest rates have increased by 325 basis points, certainly the most severe tightening in modern history.
The minutes stated, “The recent inflation data had suggested more breadth and persistence in inflation than had been expected and that strong demand was leading to price increases in some parts of the economy,”
While it was anticipated that inflation would drop, there was a chance that it would linger at an uncomfortably high level, which would incur long-term expenses.
Consistent with market pricing, the board members concurred that further increases in interest rates are likely to be required in the coming months.