The board of the Reserve Bank of Australia viewed that further monetary policy tightening might be required to bring inflation to the target but policymakers assessed that the interest rate should remain unchanged at the July meeting to alleviate the risk of slower economic growth.
Members discussed either increasing the cash rate by a quarter-point or holding the rate unchanged at the current level, the minutes of the meeting held on July 4 showed on Tuesday.
Arguments that favored raising the rate were centered on above target inflation. The timeframe to achieve the target would be extended without further monetary policy tightening, RBA policymakers observed.
At the same time, members also said the slowing economic growth was working to bring demand and supply into closer alignment, which would help to lower inflation.
Further, policymakers discussed the risk of output growth slowing more than expected. If household consumption slows more sharply, demand for labor would slow and the unemployment rate would rise beyond the rate required to ensure inflation returns to the target in a reasonable time frame.
Finally, the board noted that the case to hold the cash rate was stronger than arguments that favored raising the rate by a quarter-point at the July meeting. They said the current stance of monetary policy was clearly restrictive.
After raising the cash rate by 4 percentage points since May last year, the board had left the cash rate target unchanged at 4.10 percent at the July meeting.
Nonetheless, the board agreed that some further tightening of monetary policy may be required to bring inflation back to target within a reasonable timeframe.
The RBA is widely expected to raise the key policy rate again.
At the August meeting, the Board would have the benefit of additional economic data and updated set of staff forecasts and a revised assessment of the risks.
Deputy Governor Michele Bullock will replace Governor Philip Lowe on September 18. She is the first woman to hold the post since the central bank was founded in 1960.
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