MNI BRIEF:RBA Outlines Factors That Will Drive Pause - Minutes

Stronger demand, reduced supply capacity and signs that the 3.6% cash rate may not be as restrictive as previously thought could lead the Reserve Bank of Australia to hold rates at coming meetings, minutes of the Board’s November session showed Tuesday. 

Members noted that any of these scenarios would limit the scope for further monetary easing, particularly with inflation having been above target for several years. 

The board held the cash rate steady at the November session, citing higher underlying inflation and concerns around supply capacity. (See MNI RBA WATCH: Bullock Strikes Cautious Tone Following Pause)

The minutes also outlined conditions that could justify further easing. One possibility is a material weakening in the labour market, with members observing that many indicators have softened over the past year amid risks of slower hiring or cost-driven layoffs. Another is if GDP growth proves weaker than expected because households remain cautious on spending. Either scenario would likely generate excess capacity and dampen inflation, making rate cuts appropriate to keep inflation at target and employment near full capacity.

Given the uncertainty, members agreed it is too early to judge which path is more likely and reaffirmed a cautious, data-dependent approach. The Board said it will closely monitor global and financial conditions, domestic demand, inflation and labour-market trends while remaining focused on its mandate to deliver price stability and full employment.