Rising unemployment drove RBA’s rate hold, but inflation may lead to future hikes, minutes reveal.

The Reserve Bank decided to keep interest rates at 4.1 percent this month because they were worried that unemployment might increase more than expected. They released the minutes of their meeting on Tuesday, which showed that the decision to hold rates was not a difficult one for the board. They preferred to wait and see what happens before making any changes.

The bank mentioned that they would have more information in August about inflation, the global economy, the job market, and household spending. This additional data would help them make a better decision about whether to raise rates in the future.

The main concern behind the decision was the weakened household sector, as retail trade had dropped significantly, and consumer confidence was low due to high inflation and interest rates.

Even though recent job market data was better than expected, the board believed that there were signs of rising underemployment and some sectors were seeing more available labor. They also pointed out that there is a delay between changes in interest rates and their impact on employment.

While employment had shown positive growth in May, there were signs that the tightness in the labor market was easing slightly. Still, there were concerns about broader measures of underutilization and difficulty finding suitable labor.

The Australian Bureau of Statistics would release the latest employment data on Thursday, which many experts were waiting for before predicting further interest rate changes.

The board also discussed a slowdown in the economy, with risks of output slowing down more than expected, especially since mortgage repayments had reached a historical peak in May.

Inflation showed some signs of easing, but there were still risks in certain areas, like high food inflation and rising energy prices.

Considering all these factors, the board concluded that they might need to increase interest rates further to bring inflation back to the target level in a reasonable timeframe.

Vinod Manuel

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