RBA Minutes (Dec): Board considered several options for the cash rate decision at the December meeting: a 50bps increase; a 25bps increase; or no change in the cash; members also noted the importance of acting consistently

CASH RATE:

• members noted that a range of options for the cash rate could be considered again at upcoming meetings in 2023. The Board did not rule out returning to larger increases if the situation warranted. 


• The Board considered several options for the cash rate decision at the December meeting: a 50 basis point increase; a 25 basis point increase; or no change in the cash rate.


• the cash rate was not yet at a high level historically and, if the Board ultimately needed to move to a more restrictive policy stance, it would take some time for this to dampen demand. These factors supported an argument for taking more pre-emptive action.


• A further increase in the cash rate was likely to be necessary to achieve a more sustainable balance of demand and supply, but there had already been a material increase in the cash rate in a short period of time and there were lags in the operation of policy.


• Members also noted the importance of acting consistently, and that shifting to either larger increases or pausing at this point with no clear impetus from the incoming data would create uncertainty about the Board’s reaction function.


• The Board expects to increase interest rates further over the period ahead, but it is not on a pre-set path.

INFLATION

• members noted that the Bank’s most recent forecasts had indicated that, even with further increases in the cash rate as incorporated into the November forecasts, inflation was expected to take several years to return to the target range.


• Members emphasised that the Board’s priority is to re-establish low inflation and return inflation to the 2 to 3 per cent target range over time.

Via RBA

Reaction details (00:35)

• No move was seen in the AUD as the RBA kept all options open and emphasised its data-dependent approach.

Analysis details (00:35)

• As a reminder in early December, the RBA hiked rates by 25bps to 3.10%, as expected, while it repeated that the board expects to increase interest rates further over the period ahead but is not on a pre-set course and that inflation in Australia is too high. RBA said the board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that, while its priority is to re-establish low inflation and return inflation to the 2%–3% target over time.

20 Dec 2022 - 00:30- Fixed IncomeImportant- Source: RBA