Technical Analysis

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
  • Noted mortgage
    payments to match the record high in 2023, real incomes and house prices
  • The labour market is still
    very tight, inflation mindset changing as firms more ready to pass on
  • Data on private
    sector wages suggested “balance of risks had shifted to the
  • 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

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.

Full text is here:

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

aud is little changed.

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