RBA Meeting Minutes Suggest a Hold on Interest Rates at 4.1%

Highlights

The RBA meeting minutes drew plenty of interest this morning after the surprise hold on July 4.
Board member caution was evident in the minutes, with the RBA grappling with several uncertainties, including household spending.
Later today, US retail sales figures will also need consideration.

It was a quiet start to the day on the Asian economic calendar. There were no economic indicators to move the markets this morning. The lack of economic indicators left the RBA and the RBA meeting minutes from the July 4 meeting to draw interest.

According to the RBA Meeting Minutes,

The RBA does not expect inflation to return to the top of the target range until mid-2025.
House prices were rising again as the housing sector stabilized.
There was virtually no spare capacity in the economy or the labor market.
Higher inflation, interest rates, and increased tax payments weighed on consumer spending.
The monetary policy tightening cycle was still working through the economy.
Members considered lifting the cash rate by 25 basis points considering inflation remained too high and labor market conditions very tight.
In favor of leaving the cash rate unchanged, members noted that the Board had tightened monetary policy considerably and at a marked pace, delivering an inverted yield curve.
Members also noted that mortgage interest rate payments were around a record high and that the full effects of the policy tightening had yet to be observed, with labor market tightness likely to ease.
The Board also observed that inflation was declining, with a downward trend in commodity and shipping prices likely to ease cost pressures for goods.
The slowing economic growth was assisting in aligning demand and supply, which would lower inflation.
Household consumption uncertainty lingered, with downside risks to the economy including a more marked decline in consumption than expected.
Members would reassess the situation at the August meeting while agreeing further tightening may be needed.
Between now and the August meeting, focal points will include inflation, the global economy, the labor market, household spending, and staff forecasts.

The RBA surprised the markets for a second month in July by holding interest rates unchanged at 4.10%. Economists had forecast a 25-basis point interest rate hike to 4.25%.

However, the RBA Rate Statement did not close the door on further tightening, placing more weightage on the RBA meeting minutes. Today’s minutes left the door ajar to further tightening. The minutes also suggested the need for more time to assess the effect of the tightening cycle on the economy.

Notably, inflation in other economies softened in June, which could yield a similar trend in Australia.