Minutes from the Reserve Bank of Australia's (RBA) December 8-9 meeting showed policymakers discussed scenarios where interest rate hikes might be necessary in 2026 amid rising inflation risks, while reiterating that future policy adjustments would remain data-dependent.
The RBA kept its cash rate unchanged at 3.6% two weeks ago, noting "uncertainty" in the economic outlook and questioning how restrictive monetary policy remains, according to the minutes released Tuesday.
"Members expressed concern about recent inflation trends, suggesting price pressures could prove more persistent than currently assessed," the minutes stated. "If this persistence materializes, it may fuel market expectations of price pressures and further erode household purchasing power."
While acknowledging "some degree of excess demand" in the economy, policymakers said it was "too early to conclude" whether inflation would outlast the central bank's November macroeconomic projections.
Having cut rates by 75 basis points between February and August, the RBA is now shifting focus to containing resurgent inflation pressures. The policy committee noted the full impact of previous easing measures "has yet to be fully realized."
The minutes revealed the central bank's ongoing assessment of whether current policy settings remain appropriate amid renewed price surges, explaining Governor Michele Bullock's recent dismissal of further rate cuts. The records also highlighted policymakers' cautious approach, having successfully engineered a soft landing with unemployment hovering near historic lows just above 4%.
"Maintaining the cash rate at its current level for some time could be sufficient to keep the economy near balance, provided financial conditions remain mildly restrictive and evidence shows much of the inflation rebound stems from volatile or temporary factors," the minutes noted.
Money markets are pricing in rate hikes as the RBA's next move, potentially as early as February. Economists at Commonwealth Bank of Australia and National Australia Bank forecast a 25-basis-point increase to 3.85% at the central bank's first 2026 meeting in February.
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