SYDNEY, Feb 17 (Reuters) – Australia’s central bank concluded inflation would stay stubbornly high if it had not hiked interest rates as it did this month, and was not yet sure if further tightening would be necessary.
Minutes of the Reserve Bank of Australia’s board meeting released on Tuesday showed members were worried that the risks to its inflation and employment mandates had “shifted materially”, making the case to hike the stronger one.
“Members agreed that the data received since the previous meeting had strengthened their concern that, without a policy response, inflation would remain persistently above target for too long,” the minutes showed.
As a result, the board decided unanimously to raise the cash rate 25 basis points to 3.85%, thus reversing one of the three cuts made in 2025. Markets are wagering inflation could also prove stubborn enough this quarter that the board will hike again to 4.10% at its May meeting.
Consumer price data for the first quarter are due out in late April and analysts suspect core inflation will remains stuck near 3.4%, well above the RBA’s target range of 2% to 3%.
The central bank itself is forecasting core inflation of 3.7% for mid-year and 3.2% by Christmas.
The minutes showed the board saw risks on both sides for inflation and economic activity, and would rely on coming data to make a judgement on policy.
“Members agreed that the prevailing uncertainties meant it was not possible to have a high degree of confidence in any particular path for the cash rate,” the minutes showed.
While some of the pickup in inflation would likely be temporary, the rise had been broad based and could persist without a tigthening of policy, minutes showed.
Yet, the board did agree that it was still to bring inflation back to target over tome while maintaining the significant gains in employment made over the last few years.
The board noted domestic demand had surprised with its strength, while rapid gains in house prices and mortgage lending suggested financial conditions were not as tight as previously assumed.
The labour market was also solid with unemployment falling to 4.1% in December, such that the board judged “downside risks” to the labour market had abated.
The global economy had also proved far more resilient to U.S. tariffs than expected, due in part to the boom in AI- related investment and data centres.
The recent rise in the Australian dollar could if sustained tighten financial conditions a little, but the board noted part of that appreciation was in anticipation of higher rates.
