RBA interest rates: ‘Cautious' board worried June inflation will be higher than forecast

West Australian

7 days ago

Worries that June quarter inflation would come in slightly higher than forecast led the 'cautious' majority of Reserve Bank board members to hold interest rates earlier this month.
The RBA surprised many observers by keeping the cash rate at 3.85 per cent at the meeting, after two cuts earlier this year.
Pressure for mortgage relief had built leading up to the meeting after data showed monthly inflation had slowed in the year to May.
But those figures do not show the complete picture of cost of living, and the RBA instead watches quarterly data to make decisions.
The board's call on July 8 hinged on concerns that numbers for the June quarter might be slightly higher than forecast, according to meeting minutes published on Tuesday.
'The sharp declines in the monthly indicators for headline and trimmed-mean inflation were likely to have overstated the easing in underlying inflation momentum,' the board minutes said.
'Movements in components of the monthly CPI data that contained new information suggested that underlying inflation in the June quarter could be slightly higher than the staff had forecast.
'This reflected upside surprises to new dwelling costs and consumer durables inflation in April.'
Yet the board was confident inflation was slowing, giving a clear signal that more rate cuts will be on the way — when the time is right.
Spending was improving amid an uptick of investment into new houses, while the jobs market was 'tight' and had so far not slowed as much as the RBA anticipated.
The board's call on the strength of the labour market will receive the most scrutiny after new figures showing a modest rise of unemployment released just days after the RBA meeting.
The unemployment rate ticked up to 4.3 per cent last week, while new jobs were stagnant.
Taken together, those numbers suggest the labour market was not soaking up population growth, but do not imply widespread job losses.
The figures sparked analysts to fire up calls for an interest rate reduction and financial markets on Monday night factored in a slim chance of a bumper-sized 50 point cut.
While the board had earlier been concerned that a looming global trade war would send the local economy off the rails, the threat had eased a little by the July meeting.
US President Donald Trump backed down on some of the most severe tariff proposals and pushed out the negotiating deadline for many countries to August.
Consumer and business confidence in Australia had not been hit as badly as in other major countries, the board said.