RBA Mulls More Interest Rate Rises

If you thought the RBA was done cutting rates, you might need to think again. Whilst another rate hike is no certainty, the minutes from the RBA's Monetary Policy meeting on May 6th released today, showed the RBA is still very concerned about the outlook for inflation. Here is the money quote:

The question therefore remained whether the setting of monetary policy was sufficiently restrictive to secure low inflation over time. Members spent considerable time discussing the case for a further rise in the cash rate. But on balance, given the substantial tightening in financial conditions since mid 2007, and the extent of uncertainty surrounding the outlook, the Board decided that it was appropriate to allow the current setting of monetary policy more time to work. However, should demand not slow as expected or should expectations of high ongoing inflation begin to affect wage and price setting, the outlook, and the stance of policy, would need to be reviewed. The Board would need to evaluate prospects for economic activity and inflation in the light of incoming information.

The RBA is in a tough spot, there are clear signs that demand is slowing domestically but inflation continues to power along above 4% and is now expected to stay at those levels through the rest of 2008. Further evidence of a slowing domestic economy and a moderation in inflation needs to be seen for the RBA to lighten up on its hawkish tone.