Inflation proved once again a significant factor in the RBA’s decision to lift interest rates this month, minutes released today revealed.
“Members viewed the standard macroeconomic considerations as continuing to suggest the need for further tightening,” the RBA’s board’s monetary policy meeting minutes read.
The board said that in the near term, inflation was likely to rise further in year-ended terms from its already high level.
“It would then probably moderate during 2009, in response to the forecast slowing in demand.”
“There was some evidence, albeit tentative, that a slowing in private demand was starting to emerge, but its extent remained uncertain,” the board said. “Overall, the economy still faced a period in which inflation could be uncomfortably high.”
The minutes also mentioned Australia’s strong terms of trade and tight labour market as key influences threatening inflation.
In conclusion the board said a 25 basis points rise in the cash rate was necessary to restrain demand, in order to reduce inflation over time.
They said that setting the cash rate at 7.25 per cent would leave “adequate flexibility” to respond as necessary over the months ahead to new information on economic activity and inflation.
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