RBA September Meeting Minutes: Remain Vigilant to Upside Risks to Inflation

Remarks of Officials

Summary:

On Tuesday, the Reserve Bank of Australia's (RBA) meeting minutes showed that the current level of the cash rate best balanced the risks to inflation and the labour market. Given the considerable uncertainty about the economic outlook, each of the outcomes of rate cuts, leaving the current rate unchanged, and rate hikes were conceivable. The Board remained vigilant to upside risks to inflation.

On October 8, the RBA released the minutes of its Monetary Policy Meeting for September, and the main discussions are as follows:

Recent data on inflation had been consistent with a further gradual easing in underlying inflationary pressures. Despite a sharp decline in headline inflation, the potential inflation is higher than expected.

GDP growth in the June quarter had been in line with expectations but household consumption had been notably weaker than expected. Weak growth in output was closing the gap between aggregate demand and the economy's estimated supply capacity, but that the two were not yet aligned. The staff still judged it as likely that consumption growth would pick up alongside the expected recovery in real disposable income in the second half of the year.

The labour market still appeared to be tighter. The unemployment rate had increased a little over the preceding months as strong growth in the supply of labour was only partially absorbed by solid employment growth. Members judged that the level of aggregate demand was still above the level of aggregate supply. Weak productivity growth was constraining the economy's potential growth rate.

Members then discussed scenarios in which each of the outcomes of rate cuts, leaving the current rate unchanged, and rate hikes were conceivable given the considerable uncertainty about the economic outlook. If consumption growth picked up sharply, policy would be likely to remain restrictive. Should present financial conditions turn out to be insufficiently restrictive to return inflation to target, monetary policy could need to be tightened. If the economy proved to be significantly weaker than expected and this placed more downward pressure on underlying inflation than expected, there could be room for policy easing.

Taken together, members felt that the current level of the cash rate best balanced the risks to inflation and the labour market. They therefore agreed that it was appropriate to leave the cash rate target unchanged at this meeting. Members agreed that it was important to convey that the Board remained vigilant to upside risks to inflation. They also affirmed that monetary policy would need to be sufficiently restrictive until members were confident that inflation was moving sustainably towards the target range.

RBA September Meeting Minutes

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RBA September Meeting Minutes: Remain Vigilant to Upside Risks to Inflation

RBA September Meeting Minutes

Risk Disclosure