Monetary Policy Board minutes lay out case for slow-and-steady approach
The Reserve Bank of Australia’s decision to hold interest rates at 3.6% in September was justified by persistent consumer anxieties around the economy, despite improving consumption trends.
In the minutes from the September 29-30 meeting, the Monetary Policy Board acknowledged that recent data had shown a stronger-than-anticipated recovery in household consumption and private demand.
Household spending in Australia edged up by 0.1% in August, according to seasonally adjusted data released by the Australian Bureau of Statistics (ABS).
The slight increase follows larger increases of 0.4% in July and 0.5% in June, marking the fourth consecutive monthly rise. The uptick was supported by a rebound in real disposable incomes, driven by rising wages, employment gains, and Stage 3 tax cuts.
However, the Board flagged that consumer sentiment remained historically low, suggesting many households were still wary of economic conditions despite improved fundamentals.
In fact, consumer sentiment dipped to a six-month low in October, with the latest Westpac-Melbourne Institute Consumer Sentiment Index dropping by 3.5% to 92.1.
This effectively erased gains made earlier in the year when rate cuts had briefly lifted optimism.
Importantly, the RBA under Governor Michele Bullock (pictured) is increasingly concerned about services inflation, which has remained persistently high in both Australia and comparable economies.
The July and August CPI data came in hotter than expected, particularly in housing and market services. The Board noted that, if sustained, these figures could challenge its assumptions about the economy’s supply capacity and push the inflation trajectory above target.
Despite easing financial conditions from earlier rate reductions and stable unemployment at 4.2%, the Board concluded that monetary policy remains “a little restrictive” and stressed the need for further data before making any additional moves.
“In light of these considerations, members agreed that it was appropriate to leave the cash rate unchanged at this meeting,” read the minutes. “They agreed that the flow of information since the previous meeting, the forecasts from August and their judgement about the extent of policy restrictiveness collectively implied that there was no need for an immediate reduction in the cash rate target.
“Looking ahead, members noted that it was appropriate for the Board’s decisions to remain cautious and data dependent.”
This data-driven stance is mirrored by Australia’s major banks.
NAB and Westpac have delayed their forecasted rate cut to May 2026, while ANZ is slightly more dovish with a rate cut forecasted for February 2026. Commonwealth Bank has also pushed back its forecast for the next RBA rate cut to February 2026.
Discussing the minutes, ANZ senior economist Adelaide Timbrell said: The tone of the minutes was hawkish, in line with the post-meeting statement and Governor Bullock’s press conference.
"Unlike in the August minutes, when the Board assessed 'the likely pace of reduction in the cash rate over the period ahead', there was no discussion of further easing in the September Minutes."
