RBA Minutes Say Policymakers Discussed Pausing Rate Hikes

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Policymakers of the Reserve Bank of Australia discussed pausing the interest rate hike at the last meeting of the year, citing the lagged effect of the previous adjustments. Nonetheless, further rate hikes are on cards based on incoming data.

At the December meeting, policymakers observed that they should proceed cautiously given the uncertain environment.

However, the status quo on interest rates might not be warranted as inflation is forecast to take several years to return to the target even with further increases in the cash rate, the minutes showed.

Moreover, no other major central bank had yet paused the rate.

This was the first time that policymakers discussed no change in rate since the beginning of the current tightening cycle.

The board also considered raising the cash rate by 50 basis points and by 25 basis points. Policymakers concluded that the cash rate should be raised by 25 basis points as a further rise in the interest rate is necessary to achieve a more sustainable balance of demand and supply.

The RBA has increased the interest rate by a cumulative 300 basis points since April. The interest rate currently stands at 3.10 percent, the highest since late 2012.

Rate-setters expect to lift the interest rates further over the period ahead, but it is not on a pre-set path. The board viewed that the future size and timing of rate hikes would be determined by the incoming data.

Capital Economics' economist Marcel Thieliant said it will take some time before the Bank will be confident that inflation is moderating in earnest. The economist continues to expect three more 25 basis point rate hikes until April.

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