Minutes of the Reserve Bank of Australia's May monetary policy meeting showed that members considered three options, raising the cash rate by 15 basis points, 25 basis points or 40 basis points.

Key notes

  • The Australian economy was being supported by household and business balance sheets.
  • The resilience of the Australian economy was particularly evident in the labour market.
  • Reserve bank of Australia minutes: members considered three options for the size of the rate. increase at the present meeting – raising the cash rate by 15 basis points, 25 basis points or 40 basis points.
  • More timely evidence from liaison and business surveys indicated that labour costs were rising in a tight labour market and a further pick-up was likely over the period ahead.
  • Agreed that raising the cash rate by 15 basis points was not the preferred option given that policy was very stimulatory and that it was highly probable that further rate rises would be required.
  • A15 basis point increase would also be inconsistent with the historical practice of changing the cash rate in increments of at least 25 basis points.
  • Although the rise in inflation largely reflected global factors, members noted that strong domestic demand and capacity constraints were also playing a role.
  • An argument for an increase of 40 basis points could be made given the upside risks to inflation and the current very low level of interest rates.
  • Members agreed that the preferred option was 25 basis points.
  • Board considered whether the condition that it had earlier set for an increase in the cash rate had been met.
  • Members observed that it would be more difficult to return inflation to the target if the inflation psychology in Australia were to shift in an enduring way.
  • A move of this size would help signal that the board was now returning to normal operating procedures.
  • Would have the opportunity to review the setting of interest rates again within a relatively short period of time.
  • Members agreed that further increases in interest rates would likely be required to ensure that inflation in Australia returns to the target over time.

AUD/USD is bid on the outcome, inching towards 0.70 the figure in what is a correction of the daily bearish impulse, in line with the following analysis:

About the RBA minutes

The Reserve Bank of Australia (RBA) publishes the minutes of its monetary policy meeting two weeks after the interest rate decision is announced. It provides a detailed record of the discussions held between the RBA’s board members on monetary policy and economic conditions that influenced their decision on adjusting interest rates and/or bond buys, significantly impacting the AUD. The minutes also reveal considerations on international economic developments and the exchange rate value.

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