Australia’s central bank fretted over inflation risks

BLOOMBERG 

Australia’s central bank weighed the risk of upside surprises to inflation from a tight labour market and rising home prices when it decided to deliver a surprise interest-rate increase in May.
The Reserve Bank of Australia’s (RBA) board discussed the case to pause for a second straight month and concluded the arguments were “finely balanced” before raising the cash rate to an 11-year high of 3.85%. The decision came as RBA forecasts show headline CPI isn’t seen reaching the top of its 2-3% target until mid-2025.
“Members noted that, although this was consistent with the bank’s mandate and objectives, it left little room for upside risks to inflation given that inflation would have been above target for around four years by that time,” minutes of the board meeting showed.
“Members also agreed that further increases may still be required, but that this would depend on how the economy and inflation evolve.”
“If these risks materialised, they would further delay the return of inflation to target with the prospect of a damaging shift in inflation expectations,” the minutes showed. “Further, members noted that the forecasts presented at the meeting were predicated on a technical assumption for the path of the cash rate that involved one further increase.”
The central bank highlighted that a recent depreciation of the exchange rate and an increase in housing prices were in-part driven by the the decision to pause rate increases in April.