The Reserve Bank of Australia saw risks to employment when it held rates

SYDNEY, July 2 (Reuters) – Australia’s central bank considered whether a further rise in interest rates was needed to curb inflation at its June policy meeting, but decided to remain calm in part because of the risk of a sharp slowdown in work. the market.

Minutes of the June 17-18 board meeting on Tuesday showed the Reserve Bank of Australia (RBA) considered raising its cash rate to 4.35% amid doubts that policy was not restrictive enough to bring down inflation – currently at 4.0% – in its target range of 2-3%.

“This could be the case if it was judged that inflation was returning to target more slowly than previously assumed or that the gap between aggregate demand and aggregate supply was not closing fast enough,” the minutes said.

As a result, she did not rule out any future changes in policy.

In the end, the board judged that the case for holding steady was stronger given that the economy was still broadly tracking as expected, with inflation seen returning to target in 2026, output growth remaining weak and risks to the stock market work in the downward direction.

They noted that a decline in job vacancy rates points to weakness ahead and that historically the unemployment rate can rise quickly once it begins to rise. A continued rapid increase in business insolvency was also cited as a concern.

“Members agreed that the collective data received since the May meeting was not sufficient to change their assessment that inflation would return to target in 2026, despite an increased downside risk around the forecast.”

The RBA has held interest rates steady for five consecutive meetings now, raising them by 425 basis points to a 12-year high from May 2022.

Markets are betting there is a 36% probability the RBA could hike in August depending on the outcome of the second-quarter consumer price inflation report, due at the end of July. The monthly CPI readings for May and June had surprised to the upside.

Investors have given up on any thought of an easing this year and are estimating just 17 basis points of cuts by the end of 2025.

The board confirmed in the minutes its assessment that it was still possible to bring inflation to target while maintaining job gains, although they acknowledged that the “straight path” was narrowing.

Members noted that household consumption was revised higher in the first quarter, while there were signs that inflation was taking longer to ease than previously assumed.

This raised the question of whether the policy settings were too restrictive and too much would depend on inflation expectations.

“Members estimated that if inflation expectations rose materially from current levels, they could require significantly higher interest rates to bring inflation back to target,” the minutes showed.

(Reporting by Stella Qiu; Editing by Wayne Cole)

((yifan.qiu@thomsonreuters.com; +61 0 427901124;))

Keywords: RBA/AUSTRALIAN MINUTE