A longer conflict in the Middle East could have a material bearing on inflation and economic activity in Australia, according to the Minutes of the Reserve Bank of Australia’s March meeting.
RBA Monetary Policy Committee members considered the implications for future decision of their split majority decision to raise the official cash interest rate by 25 basis points to 4.10% on 17 March.
“They agreed that it was not possible to predict the future path for the cash rate target with any confidence, given the high degree of uncertainty around the breadth and duration of the current conflict in the Middle East,” the Minutes said.
“A longer conflict could have a material bearing on both inflation and economic activity. Members therefore acknowledged that future policy decisions would require the Board to balance its two objectives carefully.”
The board was split 5-4 in favour of an increase.
Financial markets have rated the chances of another rate rise in May at 60%.
“In finalising its statement, the Board agreed to remain attentive to the data and the evolving assessment of the outlook and risks when making its decisions,” it said.
“The Board will remain focused on its mandate to deliver price stability and full employment and will do what it considers necessary to achieve that outcome.”
They noted that market expectations for future central bank policy rates had risen materially in almost all economies since the onset of the conflict, in anticipation of increased near-term inflationary pressures.
This included some central banks that had previously been expected by market participants to lower rates over 2026, such as the U.S. Federal Reserve and the Bank of England.
Members agreed that further tightening in monetary policy would likely be required in the near term to bring inflation back to target within a reasonable timeframe.
A minority of members judged that the case to leave monetary policy unchanged at the meeting was the stronger one.
