SYDNEY, March 31 (Reuters) – Australia’s central bank board felt monetary policy needed to be restrictive when it decided to raise rates earlier this month in a split decision, although it was ready to respond should the conflict in the Middle East lead to an economic downturn.
Minutes of the Reserve Bank of Australia’s March board meeting released on Tuesday showed board members agreed it was not possible to predict the future path for interest rates with any confidence, after two rate hikes this year, given the uncertainty over the war.
“A longer conflict could have a material bearing on both inflation and economic activity,” the minutes showed. “Members therefore acknowledged that future policy decisions would require the board to balance its two objectives carefully.”
The RBA raised interest rates by 25 basis points to 4.1% earlier this month, reversing two of the three cuts made in 2025. It was the central bank’s most tightly contested vote since it began disclosing tallies last year, with the board split 5-4 in favour of an increase.
Markets see a 60% chance of another rate hike in May, with an additional tightening of 65 basis points to come this year.
Having already hiked rates unaminously in February, policymakers had judged monetary policy was still not restrictive. All members agreeing that further tightening would likely be needed, but differed on timing.
Five members that voted for the hike judged the Middle East conflict would further reduce the already constrained supply capacity of the economy and risked de-anchoring of inflation expectations, noting that it was important to show a clear commitmment to returning inflation to target.
If oil prices held around $100 a barrel, that would lift Australia’s headline inflation to around 5% in the June quarter, the central bank said. Consumer price inflation last ran at 3.7% in February.
“These members conceded it would be important to monitor downside risks to future demand closely… They noted that the board’s ability to respond effectively to a more material contraction in aggregate demand, should it occur, would not be impaired (by raising rates).”
The other four members noted the weaker household consumption and were less convinced that the labour market might have tightened in recent months, seeing merit in waiting longer until potential effects of the Middle East conflict became clearer.
(Reporting by Stella Qiu, Editing by Wayne Cole)
Keywords: AUSTRALIA RBA/MINUTES
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