Reserve Bank of Australia December meeting minutes.
Headlines via Reuters:
- Board considered whether to raise rates by 25bp or hold steady.
- Decided case for steady rates was the stronger one at this meeting.
- Board saw “encouraging signs” of progress on inflation, this needed to continue.
- Whether further tightening required would be decided by data, assessment of risks.
- Recent data had not warranted a material change to the economic outlook.
- Board saw value in waiting for more data to assess balance of risks.
- Risk inflation could stay high too long balanced by risk of sharper slowdown in demand.
- Liaison with firms showed they expected price increases to moderate in year ahead.
- Consumption growth quite weak, many households facing painful squeeze on finances.
- But domestic demand still running ahead of supply, inflation above several other countries.
- Board noted RBA staff forecast had inflation returning to top of band by end 2025 rather than midpoint.
- Board discussed RBA plans for govt bond holdings, agreed for now to keep to maturity.
- Board to continue “active consideration” of whether to sell bonds before maturity.
- Discussed whether best to sell bonds to market or to government’s AOFM.
- Judged selling bonds to AOFM would have several practical benefits.
Sorry about that second bullet point. Obviously.
The “more data” the Board is awaiting can be boiled down to Q4 quarterly CPI, which is due on January 31. If it shows high and sticky inflation then the prospect of a further 25bp rate hike at the February 5 and 6 meeting (the next RBA meeting date) will rise. That meeting is very much ‘live’ at present.
Also, on that:
- Board noted RBA staff forecast had inflation returning to top of band by end 2025 rather than midpoint.
This could be a real problem for the Bank. Last week the Australian Treasurer announced, with much fanfare, that he and the Bank had agreed to target the midpoint of the 2 – 3% band. Prior to this there was a decent potential for the bank to dial back its restrictive policy if it viewed hitting 3% as likely and imminent. Now it’ll have to wait until the 2.5 number is in sight. And its not even close. And won’t be even by the end of 2025. That’s another 2 years away.