AUSTRALIA’S central bank sees a “credible path” where inflation could be restrained with interest rates at their current level, suggesting the bar to more tightening could be a high one.

Minutes of its Aug 1 policy meeting released on Tuesday showed the Reserve Bank of Australia (RBA) Board judged that some further increase in the 4.1 per cent cash rate might be needed, but was encouraged that inflation was heading in the right direction.

As a result, the board decided to hold rates steady for a second month, the longest stretch with no hike since May last year when rates were at record lows of just 0.1 per cent.

“Members observed that there was a credible path back to the inflation target with the cash rate staying at its present level,” the minutes showed.

The RBA’s forecasts assume inflation will slow from the current 6 per cent pace to around 3.25 per cent by the end of 2024 and move into the bank’s 2-3 per cent target band late in 2025.

The board noted there were “plausible scenarios” where inflation could prove more stubborn than expected, particularly as service inflation had yet to ease.

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Members also noted a recent pick up in house prices meant financial conditions might not be as tight as assumed, especially given Australian rates were notably lower than in other developed nations.

However, consumer demand had clearly cooled, and the full effect of past hikes were still to be felt, the minutes showed.

There were also early signs the labour market might be turning after its very string run, with underemployment edging up and vacancies off their peak.

“Members agreed the argument to leave the cash rate unchanged at this meeting was the stronger one,” the minutes showed.

Whether a further hike might be needed would depend on the run of data and an evolving assessment of risks.

This was the penultimate meeting for RBA Governor Philip Lowe who leaves the bank in mid-September having been passed over by the government for a second term in favour of his deputy, Michele Bullock.

Speaking to lawmakers last week, Lowe said policy was now clearly restrictive and working to cool demand so the bank was in a “calibration” phase for future moves.

Markets still see some risk of a hike in November should inflation data for the third quarter surprise on the high side. REUTERS