RBA Elected Not to Fine Tune Rates at Policy Meeting
By James Glynn
SYDNEY--The Reserve Bank of Australia has warned that risks around the inflation outlook have risen, while uncertainty around the economy's trajectory more broadly remains highly elevated.
Minutes of the central bank's May 6 to May 7 policy meeting showed that while it said there were increased risks that inflation will stay higher for longer than expected, the policy-setting board decided to keep interest rates on hold to avoid "excessive fine-tuning" of policy settings.
The central bank left the official cash rate steady at 4.35% at the meeting, a move widely expected by economists, although the RBA's governor, Michele Bullock, acknowledged that inflation risks had tilted higher.
"Members judged that it remained reasonable to look through short-term variation in inflation to avoid excessive fine-tuning," the minutes showed.
The policy meeting was held in the wake of first-quarter inflation data that showed prices pressures were stronger than the RBA had forecast at the start of the year.
"Members agreed that it was important to convey that recent data and other information had signaled that the risks around inflation had risen somewhat," the minutes showed.
"It was difficult to either rule in or rule out future changes in the cash rate target," the board said.
The highly cautious tone of the minutes confirms that the RBA is less relaxed about the outlook for inflation that it was a few months ago, and the coming release of inflation data for the second quarter could tip the balance to a further interest-rate hike.
Australia's job market also remains tight, although data last week showed that unemployment has nudged higher recently, while wage growth appears to have peaked.
Most economists agreed that the federal government's budget for 2024-2025 will add stimulus into the economy just as substantial income tax cuts for all Australian workers are delivered on July 1.
The RBA's reticence to tap the policy brakes further is supported mostly by evidence that consumer spending has weakened sharply due to the impact of 13 interest-rate increases over the last two years and the impact of sharply rising living costs.
The board also remains confident that its forecasts still present a credible path of inflation back to the 2% to 3% target band over time.
Write to James Glynn at james.glynn@wsj.com; @JamesGlynnWSJ