The Reserve Bank of Australia published the minutes of its September meeting on Tuesday, and they read as a board that chose to move early rather than wait for proof. Members voted unanimously to raise the cash rate by 25 basis points to 4.60%, the fourth increase of the cycle, concluding that several of the upside risks identified in August had since materialised or were building, and that domestic and global developments had increased the risk of persistently elevated inflation.
The global part of the case is familiar: energy prices have risen sharply as the Middle East conflict broadened, and demand linked to the AI boom is adding cost pressure through supply chains. The domestic part is newer. July inflation came in stronger than staff expected, leading them to forecast higher underlying inflation for the September quarter than previously assumed, and members concluded that excess demand in the economy was greater than they had previously assessed, with resilient business investment, stable labour demand and elevated unit labour cost growth despite unemployment rising to 4.6% in August.
The Board did weigh the case for holding. House prices had fallen more than expected, down 3.6% from their March peak on the Cotality index, and new housing loan commitments had dropped sharply, led by investors, with overall mortgage demand down 19.2% in September on Equifax data. Members set that aside, judging on the Bank’s own analysis that even relatively large falls in house prices would have only modest direct effects on activity and spending, and noting that consumption growth would need to stay subdued for some time for inflation to return to target.
The forward language leaves November open. Members questioned whether the current cash rate would be sufficient to bring the economy back to balance within a reasonable timeframe, and the minutes repeat that the Board will increase the cash rate further if required. Market commentary ahead of the release split the banks: CBA sees a higher bar for further tightening after four hikes, while Westpac forecasts another increase to 4.85% by December. Thursday’s September labour force figures and the October 28 CPI are the two prints that will settle the argument before the November 3 decision.