RBA minutes show inflation risks ‘shifted materially’ behind February rate hike

RBA minutes show the February rate hike was driven by stronger-than-expected data, persistent broad-based inflation and easing financial conditions, with policymakers emphasising data dependence and no preset rate path.Board judged risks to inflation and employment had “shifted materially”, strengthening case for February hike.Members agreed inflation would likely stay above target too long without a policy response.Cash rate lifted 25bp to 3.85%; holding was considered but hike deemed stronger option.No preset path for rates; future decisions explicitly data dependent.Demand exceeding supply, labour market still tight, financial conditions seen as having eased.Minutes from the Reserve Bank of Australia’s February meeting show policymakers concluded a rate rise was necessary after judging that risks to both inflation and employment had shifted in a more concerning direction.Board members agreed that, absent a policy response, inflation would likely remain above the 2–3% target band for too long. Data since the prior meeting had generally surprised on the upside, reinforcing concerns that price pressures were proving more persistent than expected.Although the option of leaving the cash rate unchanged at 3.60% was discussed, members ultimately agreed that the stronger case was to lift rates by 25 basis points to 3.85%. The decision was unanimous and reflected a view that excess demand in the economy was unlikely to correct if policy settings remained unchanged.The minutes highlight that demand is now clearly exceeding aggregate supply and is forecast to do so for some time. Inflation was described as broad-based, with pressures unlikely to ease sufficiently without tighter policy. Labour market conditions were also seen as firm, with downside risks having diminished and labour costs still elevated.Financial conditions were another focus. Members noted that conditions had eased materially, with banks lending freely and credit growth strong. House prices and mortgage lending had accelerated, prompting concern that policy was no longer as restrictive as assumed, even accounting for the recent appreciation in the Australian dollar.At the same time, the board stressed uncertainty. Risks were judged to be present on both sides of the outlook, and members acknowledged it was not possible to have a high degree of confidence in any specific future path for the cash rate. Incoming data would determine whether further tightening was required.The broader global backdrop was also seen as more resilient than anticipated, supported in part by strong AI-related investment. For now, the RBA’s message is clear: policy has tightened in response to persistent inflation, but the next move remains contingent on how the data evolve.---From the day:RBA unanimous 25bp hike, lifts inflation forecasts and signals more tightening in 2026RBA governor Bullock says that inflation pulse is too strongRBA governor Bullock says the Australian economy is in a good positionPlenty since then:Bullock says RBA needs tighter policy as capacity constraints lift inflation risksRBA’s Hauser says inflation too high, vows action to return to target. AUD jumps.Bullock: higher AUD and rates will cool demand, RBA open to more hikes if neededRBA’s Sarah Hunter says labour market tight, inflation to stay above target