RBA – a material rise in inflation expectations could require significantly higher rates

Reserve Bank of Australia June meeting minutes. Headlines via Reuters:

  • The RBA Board judged the case for holding rates steady stronger than for hiking
  • Needed to be
    vigilant to upside risks to inflation, data suggested upside risk for
    May CPI
  • Economic uncertainty
    meant it was difficult to rule in or out future changes in policy
  • Recent data not
    sufficient to change outlook for inflation returning to target by
    2026
  • Judged still
    possible to bring inflation to target while keeping employment gains
  • Board saw downside
    risks to the labour market, vacancy rates pointed to weakness
  • Unemployment rate
    could rise quickly as it had done in the past
  • Continued rapid rise
    in business insolvencies would be negative for jobs
  • Wise to give little
    weight to upward revisions to household consumption
  • Q1 GDP growth had
    been very weak, wage growth looked to have peaked
  • Hike might be needed
    if board judged policy was not “sufficiently restrictive”
  • August forecast
    round would allow staff to carefully judge spare capacity in economy
  • Judgements about
    spare capacity were very uncertain, should be treated with caution
  • Inflation
    expectations still anchored, but market premia had drifted higher
  • A material rise in
    inflation expectations could require significantly higher rates

Full text is here.

There isn’t much in these Minutes to sway the case for a move to hike rates at the next meeting, in August. The August meeting will be right after the next official reading on quarterly CPI, due July 31.

The headline I popped on the post is probably the most interesting point given the inflation expectations data we had earlier:

Those expectations, from the weekly survey, won’t carry a huge amount of weight in RBA discussions, but they won’t be ignored either.

I think the TL;DR on these minutes is we have to wait for the CPI report on July 31 for a guide to what the Bank will do at its August, on the 5th and 6th, meeting.

AUD is up a touch, not a lot of movement during the session here following the drop on Monday, US time:

From the day of the statement:

This article was written by Eamonn Sheridan at www.forexlive.com. Source