SYDNEY — The Reserve Bank of Australia could return to larger interest-rate increases in 2023 if inflation continues to stubbornly resists attempts to tame it.
RBA board members are prepared to consider a range of options for Australia’s cash rate when they next convene in February, including raising it by more than 25 basis points, according to the minutes of their Dec. 6 meeting.
The minutes, published Tuesday, showed that board members believed that they would have to keep raising borrowing costs but acknowledged that they could even keep the cash rate at its current 3.10% if economic data supported it.
“A further increase in the cash rate was likely to be necessary to achieve a more sustainable balance of demand and supply, but there had already been a material increase in the cash rate in a short period of time and there were lags in the operation of policy,” the minutes said.
The RBA raised the official cash rate by 25 basis points on Dec. 6, marking the third straight month that it increased borrowing costs by that amount. It had previously hiked the rate by 50 basis points for four straight months.
There was much uncertainty over the potential impact of previous rate rises on consumption, such that board members also discussed holding the cash rate at 2.85% or lifting it to 3.35% before settling on middle ground.
“Shifting to either larger increases or pausing at this point with no clear impetus from the incoming data would create uncertainty about the board’s reaction function,” the minutes said.
Some economists had said there was room for the RBA to pause after annual inflation moderated to 6.9% in October from 7.3% in September. The minutes showed board members acknowledged that monthly data should be treated cautiously and that quarterly inflation numbers would carry more weight.
The RBA raised the cash rate by a cumulative 300 basis points in 2022 as it tries to wrest annual inflation back to its 2%-3% target range. It expects the impact to show as the share of household income spent on required mortgage payments returns to record levels in late 2023.
“The substantial cumulative increase in interest rates since May has been necessary to ensure that the current period of high inflation is only temporary. The board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome,” the minutes said.
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