The Reserve Bank of Australia’s August meeting minutes, published on Tuesday, indicate that policymakers debated raising interest rates by 25 basis points despite ultimately voting to hold the cash rate at 4.35%, the highest level since 2012.
Minutes from the meeting revealed that members discussed the possibility of tightening policy further to address rising inflation risks, though the board did not disclose the number of officials who favored a hike. The cash rate remains at the upper end of estimates for a neutral policy stance, with financial conditions described as "somewhat restrictive."
Headline inflation slowed to 3.9% in the June quarter, below the RBA’s May forecast of 4.8%, primarily due to weaker fuel and travel prices rather than broad-based disinflation. However, policymakers noted that inflation remains well above the central bank’s 2% to 3% target range. The trimmed mean measure of inflation is projected to stay above 3% until mid-2027 before easing toward 2.5%, with economic growth expected to slow through 2026.
Unemployment is forecast to rise gradually, reaching 4.8% by the end of 2028, while the labor market has softened slightly more than anticipated. Policymakers acknowledged that the job market remains somewhat tight despite recent cooling. The housing market has also cooled more sharply than expected, with national home prices down about 1.5% from their March peak and demand for new housing loans declining, particularly among investors.
The minutes highlighted several sources of renewed price pressures, including elevated oil prices tied to geopolitical risks in the Middle East, increased business cost pass-throughs, stronger-than-expected investment in AI and data centers, resilient household demand, and weaker productivity growth. Rate futures are now pricing a 13% chance of a 25-basis-point hike to 4.60% at the September 28–29 meeting, rising to 67% by February.
Policymakers reiterated that monetary policy is already "sufficiently restrictive" to bring inflation back toward target over a reasonable timeframe, though the debate over further tightening underscores ongoing concerns about inflation persistence.
