RBA hints at further hikes in ‘hawkish’ minutes

Members discussed that mounting global cost pressures, stronger-than-expected inflation and evidence that domestic capacity constraints were greater than previously assessed.

Following the release of the minutes, CBA and the National Australia Bank have retained their forecasts of an extended hold following September’s hike, while ANZ and Westpac expect another increase in November, which would take the official cash rate to 4.85 per cent.

The board’s discussion began with the unresolved inflation challenge, with members noting that “inflation remained too high”.

Its August forecasts had envisaged inflation returning to the midpoint of the 2–3 per cent target range around late 2027, yet that outlook depended on slower economic growth creating spare capacity, productivity improving, and inflation expectations remaining stable.

Members also revisited the international and domestic threats to that trajectory.

“Members recalled that, at the previous meeting, they had judged the risks around the outlook for inflation to be tilted to the upside,” the RBA said.

“This reflected concerns about the potential for global cost pressures to build if the Middle East conflict persisted and/or pressures associated with the global AI boom widened, and about the limited margin of spare capacity domestically.”

The minutes revealed that “since August, some of these concerns had materialised”.

Inflation risks strengthen the case for action

Members noted that the escalating Middle East conflict had undermined the energy price assumptions underpinning the RBA’s forecasts and added to broader international inflation pressures.

Domestically, the board had both an unexpectedly strong inflation reading and reports from businesses indicating that higher costs were feeding, or could soon feed, into selling prices.

“The recent inflation outcome had exceeded expectations and liaison revealed widespread cost pressures that firms were either passing into the prices of their goods and services or looking to do so,” the RBA said.

While members agreed that monetary conditions were restraining activity, they also questioned whether that restraint was sufficiently strong.

The minutes then set out three principal arguments for September’s increase, beginning with the deterioration in the inflation outlook since August.

“The strongest argument for raising the cash rate target at this meeting was that several of the upside risks identified in August had since materialised or were building,” the RBA said.

“Members noted that there had been additional signals from the July inflation data that domestic capacity pressures may be more extensive than assumed in the August forecast.”

The second argument centred on the risks of delaying action, particularly after an extended period of above-target inflation.

“Members acknowledged that waiting for further confirmation of the outlook for inflation could be costly, given that inflation had already been above target for an extended period and there were concerning indications from surveys and liaison of a growing risk that medium-term inflation expectations in the business community may be rising,” the RBA said.

Members also considered whether further subduing household spending growth was necessary to offset stronger demand elsewhere in an economy still operating with excess demand.

A harder balance between inflation and employment

The board also acknowledged that global cost pressures had made its dual objectives more difficult to reconcile.

“In reaching that conclusion, members acknowledged that the trade-off between inflation and full employment had deteriorated because of global cost pressures,” the RBA said.

Members reaffirmed their intention to return inflation to target while preserving as many employment gains as possible; however, they conceded that persistent supply disruptions could increase the economic cost of achieving that outcome.

“However, executing this strategy in an environment of more persistent adverse supply shocks would require accepting slower growth in demand and employment than would otherwise be the case,” the RBA said.

The closing statement retained a conditional option to tighten further.

“The Board will remain focused on its mandate to deliver price stability and full employment and will continue to do what it considered necessary to achieve that outcome, including increasing the cash rate target further if required,” the RBA said.

ANZ and CBA split on November decision

ANZ said the minutes reinforced the hawkish tone of the September decision statement, while offering limited guidance about the next move.

“The minutes of the September RBA Monetary Policy Board (MPB) meeting read hawkish, and consistent with the tone of the post-meeting statement. Looking ahead, the minutes offer few clues on the coming November meeting,” it said.

“We continue to expect that a rate hike in November is more likely than not, although the incoming data and global events will play a large part in shaping the MPB’s views between now and November.”

The bank also distinguished the written record from the softer elements of governor Michele Bullock’s subsequent press conference.

“Overall, we read these minutes as more consistent with the hawkish tone to the post meeting statement and less so some of the more dovish elements of the September press conference,” ANZ said.

CBA similarly highlighted the emphasis on inflation, yet tentatively retained its expectation that the tightening cycle would pause.

“The minutes today were decisively hawkish, as you would expect given the unanimous decision to hike the cash rate,” it said.

“We still see the cash rate on hold from here but acknowledge the clear risk is another rate hike from here with November very much live.”

CBA further argued that the minutes were substantially more hawkish than Bullock’s post-meeting press conference.

“The Minutes were a clear contrast to the messaging by the Governor in her unscripted answers in the press conference. A hawkish statement shifted to a dovish press conference where a focus on the lags of monetary policy and the four rate hikes to date were ‘hoped’ to be enough shifted the message,” it said.

The bank also questioned the treatment of monetary policy’s delayed effects, contrasting the minutes with the governor’s argument for patience.

“Quite surprisingly, there was no mention of the lags to monetary policy, which was a key point made by the Governor as a reason to be more patient,” CBA said.

“Added to this, there was an acknowledgement that the board’s strategy is shifting, in particular that it may not be able to preserve as many of the gains in employment if supply side constraints continue to bind.

“Related to this, they are also prepared to act on higher inflation, even if it is driven by ‘factors beyond the influence of monetary policy’.”

[Related: Bullock labels current rate ‘restrictive’ yet says more hikes possible]