Inflation: Reserve Bank governor Michele Bullock keeps door open to another interest rate hike

The Reserve Bank has kept the door open to another rate hike, while admitting that the risks of resurgent price pressures have also escalated.

Fresh meeting minutes released following the RBA’s May 6-7 monetary policy meeting, released on Tuesday morning, noted that inflation had eased more slowly than anticipated, creating “considerable uncertainty”.

“Members agreed that it was important to convey that recent data and other information had signalled that the risks around inflation had risen somewhat,” the meeting minutes read.

“A higher cash rate might also be required, even with ongoing weakness in aggregate demand, if other factors slowed the pace of disinflation.”

May’s board meeting came after hotter-than-expected March quarter inflation figures took analysts by surprise, and stoked fears that the RBA would resume its aggressive run of interest rate increases.

However, with separate data since showing that wages growth has peaked and the jobs market is beginning to loosen, traders have ramped up their rate cut bets, ascribing a 50 per cent chance of a cut at the RBA’s December meeting.

Markets are fully priced for a 25 basis point cut by April 2025.

While the RBA board ultimately kept the cash rate on hold at a 12-year high of 4.35 per cent, the meeting minutes showed the central bank again considered the case for a rate hike, an option it eschewed at its previous meeting in March.

RBA officials have now kept the cash rate on hold since November, balancing the risks of overdoing interest rate increases and sparking an economic downturn or allowing price pressures to rebound and holding above its 2 to 3 per cent target band.

As the RBA’s 13 rate increases since May 2022 work to slow the economy, separate data released on Tuesday morning showed households remained deeply pessimistic about the economy even as Treasurer Jim Chalmers unveiled another round of cost of living support.

Westpac’s Consumer Sentiment Index dipped a further 0.3 per cent in May as fears that persistently high inflation may require further tightening of monetary policy outweighed “well-received” measures for households in last week’s federal budget.

More to come.

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