RBA board split on August rate hike, minutes show

The Reserve Bank of Australia's (RBA) policy board was deeply divided at its August meeting, with several members arguing for an immediate interest rate increase to counter upside risks to inflation, according to minutes released on Tuesday.

The nine-member board ultimately voted unanimously to keep the cash rate at 4.35%, but the debate marked the fourth time this year that a hike was seriously considered. Those in favour of tightening argued that inflation risks could materialise, potentially requiring further action. They also suggested that a pre-emptive move might be appropriate, and that the economic trade-off for curbing inflation could be less damaging to the labour market than in past episodes.

Other members, however, contended that the current policy setting was already working to bring inflation down and that the board could afford to wait. They pointed to cooling inflation, a rising unemployment rate, and a weakening housing market as evidence that there was time to observe how the economy evolved.

All members agreed that additional data would be crucial before the next decision. By the September meeting, the board will have access to fresh monthly inflation and labour market reports, the June quarter national accounts, and more information on housing trends and the Middle East conflict.

The minutes highlighted key risks to the outlook, including the conflict in the Middle East, a global boom in AI and data centre investment, and weak productivity growth. With Brent crude trading near $92 a barrel, up sharply from a July low, the geopolitical situation remains a significant concern.

Markets currently price a slim 13% chance of a rate rise to 4.6% at the September 28-29 meeting, while a move by February next year is roughly 67% priced in.