Investing.com - At its recent policy meeting, the Reserve Bank of Australia (RBA) discussed the possibility of increasing interest rates due to persistent inflationary pressures but decided against making an immediate move. The minutes of the meeting, held on October 3, indicated that the bank's board was worried about inflation not slowing as expected, hinting at a potential rise in the 4.1% cash rate in November.
The board expressed significant concerns about the upside risks, emphasizing a low tolerance for a slower return of inflation to the target than currently anticipated. The RBA currently projects that inflation will not fall back within the 2-3% target range until late 2025. As of the second quarter, the annual consumer price inflation was at 6%, and it was 5.2% in August.
The board reiterated that further tightening might be necessary to control inflation. Interest rates have already surged by a substantial 400 basis points to an 11-year high, and the full impact of this tightening is yet to materialize.
A recent surge in petrol prices could influence inflation expectations, while the progress in reducing services inflation has been slow. The board members noted that they would receive more data on economic activity, inflation, and the labor market, as well as revised staff forecasts, before the November meeting.
Market expectations currently suggest a 16% probability of a rate hike in November, which could increase if inflation exceeds expectations. The board also expressed concerns that the ongoing rebound in housing prices might indicate that the monetary policy stance is not as restrictive as assumed and could be bolstering household consumption.
However, the board also acknowledged that the labor market has reached a turning point, output growth has slowed, and the full effects of the tightening so far may take some time to manifest in the data.
In August, required mortgage payments rose to 9.9% of household disposable income, surpassing the previous estimated historical peak. The board also noted that the repayment of the first tranche of the Term Funding Facility has passed smoothly. There was a transient rise in short-term money market rates, but it was not sustained. The minutes did not mention the possibility of the bank selling some of its government bond holdings early, as some market participants had speculated.