RBA Minutes Show Bias Toward Holding Rates as Inflation Stays Elevated
The US dollar was largely unchanged following comments from President Trump, who stated that tariffs are bringing semiconductor production back to the US and that he intends to push inflation to around 1% or slightly lower. Trump also argued that the US had “foolishly lost” the chip market to Taiwan and said he expects tariff-based dividends to be issued to Americans by mid-2026. Despite the remarks, the DXY index showed little reaction, suggesting that markets may have already priced in the potential impact or are waiting for concrete policy actions.
Meanwhile, the Reserve Bank of Australia (RBA) released the minutes for the monetary policy meeting last November 3-4. The bank decided to keep the cash rate unchanged at 3.60%, judging that monetary policy remains slightly restrictive even though financial conditions have eased following earlier rate cuts. Members noted that rate reductions had lowered borrowing costs, lifted housing prices and credit, and supported business debt growth, although scheduled mortgage payments were still historically high for many households. Risk premia in financial markets were low and funding remained readily available, leading the Board to acknowledge that financial conditions may now be less restrictive than in previous years.
Inflation in the September quarter was higher than expected, with both headline and underlying inflation at or above 3%. While some drivers were temporary, the Board observed that price pressures were also strong in areas linked to domestic costs such as new home construction and market services, suggesting that underlying inflation might be more persistent than previously judged. The RBA expects underlying inflation to stay above 3% until the second half of 2026, and only return slightly above the midpoint of the target range in 2027.
Labour market conditions continued to soften, with unemployment rising and participation edging lower, although indicators still point to some remaining tightness, including high job vacancies and firms reporting capacity constraints. The unemployment rate is forecast to remain close to 4.5% as economic growth stabilizes. GDP growth is expected to pick up gradually, driven by improving real incomes, tax cuts and the delayed effect of earlier monetary easing, while global growth is forecast to slow only modestly.
Based on the minutes, the RBA is expected to keep interest rates on hold in the near term and maintain a cautious, data-dependent approach. The Board stated that it could afford to be patient as it assesses spare capacity, inflation momentum and the extent of policy restrictiveness. Further rate cuts remain possible if the labour market weakens more than expected or if household spending slows and excess capacity emerges, which would ease inflation pressures. However, if inflation proves sticky, if productivity remains weak or if demand rebounds strongly, the RBA may delay easing and keep rates higher for longer than markets previously anticipated. Overall, the minutes suggest a bias toward holding.
Trading activity may remain muted today and tomorrow due to the lack of new economic data. However, market attention is expected to pick up later in the week, as the US releases missed data following the government shutdown, which could provide fresh direction for currency markets.
Analysis by Coach Angel
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Disclaimer: Investing is risky. Investors should study the information before making investment decisions.
