RBA minutes: Board tightens monetary policy amid inflation concerns

November 21, 2023 11:54 AM AEDT | By Investing
Follow us on Google News:

Investing.com - At a recent monetary policy meeting convened by the Reserve Bank Board on November 7, 2023, crucial discussions on global and domestic economic developments were held. The spotlight was on the persistent inflationary concerns, which have seen a surge in advanced economies due to recent fuel price hikes. The escalating Israel-Hamas conflict was also viewed as a potential catalyst for global inflation amid potential disruptions in the region's energy supply.

The board highlighted that many advanced economies had experienced slowed output growth due to tightened monetary policy and cost-of-living pressures. However, some economies, including the United States, demonstrated a smaller less-than-expected slowdown, with labor markets remaining tight.

The economic outlook for Australia's major trading partners was discussed, with an expected slowdown in output growth from 3.5% in 2023 to 3% in 2024. China's economic outlook was regarded as uncertain, primarily due to the continued weakness in its property sector.

In terms of domestic economic conditions, the board noted that inflation had continued to decline year-on-year in the September quarter, despite underlying inflation being stronger than forecasted. This led to an upward revision in the outlook for output growth and inflation due to robust domestic demand pressures.

Despite high inflation and interest rates impacting demand, the near-term outlook for output growth was revised upwards. The board anticipated that the housing market and the revival of international student and tourist arrivals would bolster spending in the economy.

The labor market demonstrated resilience in 2023, albeit with signs of gradual easing. The unemployment rate was projected to stabilize around 4.25% from late 2024, with employment growth expected to moderate.

On international financial markets, the board noted that despite similar economic conditions, the cash rate remained below policy rates in many other countries. A rise in longer-term bond yields was observed, reflecting increased inflation expectations. Market expectations for the cash rate also increased, with the market pricing indicating a high probability of a 25 basis point increase in the cash rate in November.

The board weighed the implications for monetary policy of developments in financial conditions, considering whether to raise the cash rate target by a further 25 basis points or to hold it steady. The decision to raise the cash rate was driven by the risks arising from a stronger inflation outlook than a few months earlier.

Despite the ongoing decline in inflation in year-ended terms, the uncertainty of the geopolitical and economic outlook, and the slowing economy, the board concluded that the case to raise the cash rate target at the current meeting was stronger. They agreed that delaying such an adjustment would create a risk of requiring a larger monetary policy response in the coming months, especially if inflation pressures turned out to be stronger than expected.

The board acknowledged the impact of this decision on household finances, noting that while some households were benefiting from rising house prices, substantial savings buffers, and higher interest income, others were experiencing a squeeze on their finances.

The board concluded their meeting by agreeing that whether further tightening of monetary policy is required would depend on how the incoming data alter the economic outlook and the evolving assessment of risks. They reaffirmed their determination to return inflation to target and will adjust policy as necessary to achieve that outcome.

This article first appeared in Investing.com


The content, including but not limited to any articles, news, quotes, information, data, text, reports, ratings, opinions, images, photos, graphics, graphs, charts, animations and video (Content) is a service of Kalkine Media Pty Ltd (Kalkine Media, we or us), ACN 629 651 672 and is available for personal and non-commercial use only. The principal purpose of the Content is to educate and inform. The Content does not contain or imply any recommendation or opinion intended to influence your financial decisions and must not be relied upon by you as such. Some of the Content on this website may be sponsored/non-sponsored, as applicable, but is NOT a solicitation or recommendation to buy, sell or hold the stocks of the company(s) or engage in any investment activity under discussion. Kalkine Media is neither licensed nor qualified to provide investment advice through this platform. Users should make their own enquiries about any investments and Kalkine Media strongly suggests the users to seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice), as necessary. Kalkine Media hereby disclaims any and all the liabilities to any user for any direct, indirect, implied, punitive, special, incidental or other consequential damages arising from any use of the Content on this website, which is provided without warranties. The views expressed in the Content by the guests, if any, are their own and do not necessarily represent the views or opinions of Kalkine Media. Some of the images/music that may be used on this website are copyright to their respective owner(s). Kalkine Media does not claim ownership of any of the pictures displayed/music used on this website unless stated otherwise. The images/music that may be used on this website are taken from various sources on the internet, including paid subscriptions or are believed to be in public domain. We have used reasonable efforts to accredit the source wherever it was indicated as or found to be necessary.

Top ASX Listed Companies

We use cookies to ensure that we give you the best experience on our website. If you continue to use this site we will assume that you are happy with it. OK