RBA December Minutes: Further rates hikes will likely be needed to balance supply & demand

Reserve Bank of Australia December meeting minutes

Headlines via Reuters:

• Board considered hiking by 25bp, 50bp or pausing at the December meeting
• Board saw arguments for each option but the 25bp hike had the strongest case
• A range of options for the cash rate will be considered in coming meetings
• Further rise in rates likely to be needed to balance demand and supply in the economy
• Board noted no other central bank had yet paused its tightening
• Important to act consistently on policy, no clear impetus from data to change from 25bp moves
• Ready to return to larger hikes if needed, or to leave rates unchanged for a period
• Not on pre-set policy path, pace and peak for rates depends on incoming data
• Cash rate had already risen significantly, though not yet at a high level historically
• Noted mortgage payments to match the record high in 2023, real incomes and house prices falling
• The labour market is still very tight, inflation mindset changing as firms more ready to pass on costs
• Data on private sector wages suggested "balance of risks had shifted to the upside"
• Liaison with firms suggested wages growth had continued to pick up in Q4
• Slowdown in October monthly CPI was welcome, but should be treated with caution
• Some signs of easing supply pressures, a sustained decline in inflation expected over 2023

And, some verbatim:

• Members emphasised that the Board’s priority is to re-establish low inflation and return inflation to the 2 to 3 per cent target range over time.
• High inflation damages the economy and makes life more difficult for people.
• The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome.
• The Board did not rule out returning to larger increases if the situation warranted. Conversely, the Board is prepared to keep the cash rate unchanged for a period while it assesses the state of the economy and the inflation outlook

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I guess if your view is that the RBA will not be hiking any further there are a few straws you can clutch at in the minutes. On balance though I am happy to stay with my view that there are further rate hikes to come. The RBA next meet on February 7 and I expect another +25bp rate hike then.

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Full text is here:

Minutes of the December 2022 Monetary Policy Meeting of the Reserve Bank Board

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