THE Reserve Bank of Australia (RBA) considered a 25 basis point hike in interest rates before eventually deciding to hold the benchmark cash rate unchanged at 4.1 per cent, the minutes of the central bank’s September meeting released on Tuesday (Sep 19) showed.

The board noted that weak productivity growth and high services prices inflation were evidence of a case for an increase in interest rates, but that these were ultimately outweighed by the risk that the effects of a tightening cycle that only began in May last year have yet to be felt.

“The recent flow of data was consistent with inflation returning to target within a reasonable timeframe while the cash rate remained at its present level,” the minutes showed.

“Members recognised the value of allowing more time to see the full effects of tightening of monetary policy since May 2022, given the lags in the transmission of policy through the economy.”

Board members also noted that there was a risk the economy could slow more sharply than forecast, with weaker domestic consumption and contagion from a weaker China both cited as risk factors.

After sharply cutting rates to an all-time low of 0.1 per cent to stimulate growth during the pandemic, the RBA has commenced 400 bps of rate hikes to an 11-year high of 4.1 per cent in little over a year.

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The board, in its final meeting chaired by outgoing governor Philip Lowe, noted that some further tightening of monetary policy may still be required should inflation prove more persistent that expected.

The RBA’s current 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 by late 2025.

Former deputy governor Michele Bullock began her first day in the top role on Monday. REUTERS