RBA Minutes: Members see case for rate hike as inflation expectations risk grows

The Reserve Bank of Australia (RBA) published the Minutes of its May monetary policy meeting this Tuesday, which showed that eight members saw case for rate hike as strongest and one member preferred to await further data. 

Additional takeaways:

Hike would give board space to see how gulf conflict developed, response of households and business.

Board judged financial conditions would be somewhat restrictive after may hike.

For future decisions, board agreed monetary policy could not alter the near-term trajectory of inflation.

Board agreed Australian economic growth likely to be below potential for some time.

Board will do what it considers necessary to meet inflation, employment mandates.

Majority emphasised core inflation was projected above target for extended period.

Board considered whether to hike by 25bps or to keep rates at 4.10%.

Eight members considered case for hike to be strongest, one wanted to wait for more information.

Judged additional loosening in the labour and product markets was needed given inflation risks.

Majority felt risks to inflation objective had risen, not confident 4.1% enough to offset risks.

Saw risk longer-term inflation expectations could become de-anchored.

One member felt capacity pressures not as great, protracted war more of a risk to demand.

Member expected inflation to return to target without further tightening.

Market Reaction:

The Australian Dollar (AUD) remains weak following the RBA Minutes. At the time of writing, the AUD/USD pair is trading 0.24% lower on the day to trade at 0.7150.