In holding the cash rate steady in September, the RBA has judged that policy remains restrictive even as housing and credit growth gather pace.
The Reserve Bank of Australia (RBA) has assessed that monetary policy remains “probably still a little restrictive” even as earlier easing measures begin to filter through the economy, the September minutes revealed.
Board members noted that inflation remains on course to return to around the midpoint of the 2–3 per cent target range, while labour market conditions have stayed close to full employment.
The forecasts underlying this outlook were based on market expectations of three further 25 basis point cuts over the year ahead, including the one delivered in August.
Since that meeting, however, private demand recovered slightly faster than expected, with June quarter national accounts and early September indicators showing firmer growth in domestic spending.
Employment growth slowed in August, but the unemployment rate held steady, leaving overall conditions little changed. Members judged that the labour market “was still a little tight”, and that forward-looking indicators were not signalling material change in the near term.
While acknowledging the difficulty in gauging the exact degree of restriction, the board observed that the reduction in the cash rate target in August and a pick-up in housing prices and credit growth indicate the impact of earlier easing is starting to show.
Members agreed it would take time before the full effect of those measures works through the economy.
“The pick-up in housing price and credit growth over prior months was indicative of the easing in monetary policy earlier in the year having an impact,” the minutes stated.
“Moreover, it would be some time before the full effect of the monetary policy easing flowed through the economy.”
Additionally, the RBA discussed the July and August monthly CPI indicator, noting that outcomes for market services and housing suggest the September quarter inflation reading could be higher than anticipated in August.
If that trend persists alongside stable labour market conditions, the balance between demand and potential supply may be tighter than previously assumed, according to the board.
They also drew parallels with other advanced economies where services inflation has proven persistently elevated, underscoring the need for caution in declaring victory over inflation too soon.
The RBA maintained that monetary policy decisions will remain data-dependent, acknowledging “risks on both sides of the forecast”.
On the upside, stronger consumption or tighter capacity constraints could push inflation higher, while on the downside, persistent consumer caution, soft employment momentum, and subdued wages growth could temper activity.
Financial stability considerations were deemed no constraint on the current decision, and members agreed there was no need for an immediate rate cut.
Looking ahead, the board reaffirmed that its decisions should “remain cautious and data dependent” as it monitors domestic demand, inflation, and labour market trends alongside developments in the global economy.
“The board will remain focused on its mandate to deliver price stability and full employment and will do what it considers necessary to achieve that outcome,” the minutes concluded.
