Australia’s central bank uncertain about rate path after March hike

The board of governors of the central bank of Australia believed that monetary policy should remain restrictive when it decided to raise rates at the start of the month, after a split vote, while remaining ready to react if the conflict in the Middle East were to lead to an economic slowdown.

Minutes of the Reserve Bank of Australia’s (RBA) March meeting, released on Tuesday, show board members agreed it was impossible to predict with certainty the future trajectory of interest rates, after two increases this year, given war-related uncertainties.

“Prolonged conflict could have a material impact on both inflation and economic activity,” the minutes said. “Members therefore recognized that future monetary policy decisions would require the council to carefully balance its two objectives.”

The RBA raised interest rates by 25 basis points to 4.1% earlier this month, reversing two of three cuts made in 2025. It was the central bank’s narrowest vote since it began disclosing voting details last year. the council was in fact divided 5 to 4 in favor of an increase.

Markets are pricing in a 60% chance of another rate hike in May, with a further 65 basis points of tightening expected by the end of the year.

After having already unanimously raised rates in February, those responsible for monetary policy judged that it is still not restrictive. All members agreed that further tightening would likely be necessary, but differed on the timetable.

The five members who voted for the increase believed that the conflict in the Middle East would further reduce the already constrained supply capacities of the economy and risk unanchoring inflation expectations, underlining the importance of demonstrating a clear commitment to a return of inflation to its target.

If oil prices remained around $100 a barrel, headline inflation in Australia would rise to around 5% in the June quarter, the central bank said. Consumer price inflation stood at 3.7% in February.

“These members agreed that it would be important to closely monitor downside risks to future demand… They noted that the board’s ability to respond effectively to a deeper contraction in aggregate demand, should it occur, would not be compromised (by rising rates).”

The other four members noted the weakness in household consumption and were less convinced by a possible tightening of the labor market in recent months, deeming it preferable to wait until the potential effects of the conflict in the Middle East become clearer.

(Reporting Stella Qiu, French version by Wayne Cole) Keywords: AUSTRALIA RBA/MINUTES