Australia’s Central Bank Remains Jittery About Inflation Risks, Global Uncertainty

SYDNEY—The Reserve Bank of Australia remains jittery about the risks of higher inflation and will have little tolerance for any data that point to further delays in taming price pressures, according to the minutes of its latest policy meeting.

“Given the already lengthy period in which inflation had been above (2% to 3%) target, the board will have minimal tolerance to accommodate a more prolonged period of high inflation, even if this occurred because of factors that constrained the economy’s supply capacity,” minutes of the meeting held on Nov. 4-5 said.

The RBA left the official cash rate at 4.35% at the meeting, completing a full year since policy settings were last changed.

Economists remain confident that the RBA will start to cut interest rates in the first half of next year, but money markets are far less optimistic, with recent swap market pricing suggesting the RBA could be delayed until August.

To be sure, the minutes suggested the RBA is in no rush to cut the OCR, given numerous warnings about stubborn inflation pressures and a comment that the board will need to see more than one good quarterly inflation outcome to be confident that a fall in inflation was sustainable.

Inflation remained above the target band in the third quarter, with policymakers concerned that core inflation readings remain stubbornly high, while price pressures in the services sector of the economy remain sticky.

“Members observed that underlying inflation…remained too high and that staff forecasts did not see inflation returning to target until 2026,” the minutes said.

The RBA said it isn’t ruling anything in or out in terms of policy decisions, implying that under the right conditions, an interest rate increase might still be needed.

The minutes showed the policy-setting board explored several scenarios that might see it raise or lower the OCR.

The RBA was among the last of the major central banks to start raising interest rates following the global spike in inflation at the end of the Covid-19 pandemic, while also not tightening as far as its peers over ensuing years.

Global events might yet determine the outlook for interest rates. The minutes cited a number of growing international risks including uncertainty about the policy direction of the Trump White House, the size and composition of stimulus to support China’s economy, and the potential for unsustainable growth in global government debt.

“It was not yet possible to factor in events such as these, given pertinent details were unknown and still largely unpredictable,” the minutes said.

Australian shares fell on Thursday as Wall Street weakness, rising oil and persistent rate concerns weighed on most of the market.

The S&P/ASX 200 declined 0.72 per cent to 8,702. The All Ordinaries lost 0.66 per cent to finish at 8,897. Mining stocks were hit particularly hard, while real estate also dragged on the index.

Energy was the notable exception, gaining more than one per cent as Brent crude traded above US$103 a barrel. Oil had moved higher amid uncertainty surrounding potential US diesel-export restrictions and broader geopolitical supply risks. The move supported energy producers but renewed concern about inflation inputs across transport and the wider economy.

Gold shares were weak even as spot bullion remained historically elevated. The All Ordinaries Gold index fell about 2.25 per cent, showing that equity performance can diverge from the commodity because of valuation, currency, operating and company-specific factors.

Zip was a prominent loser, falling 11.38 per cent after the company reported short sales after the previous close. Nine Entertainment also weakened after UBS analysts warned of near-term revenue challenges associated with its advertising-supported subscription tier.

Premier Investments led larger winners despite caution about the retail environment. Breville, in which Premier owns a significant stake, also appeared among leading movers. In the broader ASX 300 screen, Myer gained 11.43 per cent and MAAS Group rose 7.93 per cent, while Lotus Resources fell 10.53 per cent. These percentage moves should be checked against company announcements and trading liquidity before attributing causes.

The Australian dollar was broadly flat at US70.38 cents. Spot gold was around US$4,280 an ounce, Brent crude approximately US$103.08 a barrel and iron ore near US$96.90 a tonne late in the session.

The rate outlook remains the central domestic catalyst. Labour-market weakness has not eliminated the possibility of an RBA increase next week, leaving banks, listed property and other rate-sensitive sectors exposed to changing expectations.

Market dashboard

S&P/ASX 200: 8,702, down 0.72 per cent.

All Ordinaries: 8,897, down 0.66 per cent.

Best sector: Energy, up more than one per cent.

Weakest areas: Real estate and materials were the major drags; confirm final sector percentages before publication.

Material winner: Premier Investments led the large-company gainers. Confirm its final closing move from the ASX before publication.

Material loser: Zip, down 11.38 per cent.

ASX 300 percentage leader: Myer, up 11.43 per cent.

ASX 300 percentage laggard: Zip, down 11.38 per cent.

AUD/USD: Approximately US$0.7038, broadly flat.

Australia’s Central Bank Remains Jittery About Inflation Risks, Global Uncertainty

Minutes suggested the central bank is in no rush to cut the official cash rate