The Reserve Bank of Australia published minutes detailing the Monetary Policy Board’s unanimous decision to raise the cash rate target by 25 basis points to 4.60%. Members concluded that several upside risks identified in August had materialized, including higher oil prices following an escalation of the Middle East conflict, growing cost pressures from global artificial intelligence demand and evidence that domestic capacity constraints were greater than previously assessed. The Board indicated that it could raise the cash rate further if these pressures persist. Stronger than expected July inflation, broad cost pressures reported by businesses, elevated unit labor cost growth and slightly stronger GDP growth suggested excess demand was greater than previously estimated. Members judged financial conditions to be restrictive, though possibly only modestly so if global neutral interest rates have risen. They considered risks from falling housing prices, geopolitical uncertainty and the delayed effects of earlier tightening, but concluded that resilient investment, stable labor demand indicators and generally sound household and business balance sheets supported timely action. More persistent supply shocks may require slower growth in demand and employment to return inflation to target. The Board’s semiannual financial stability assessment found that domestic borrowers and financial institutions remained resilient, leaving financial stability considerations free from constraining monetary policy. Risks were more pronounced abroad, particularly in global government bond markets, highly priced equity and credit markets, AI related debt accumulation and operational dependencies on common service providers. The Board also endorsed regular Term Repo Operations to provide longer maturity liquidity alongside existing facilities, with implementation envisaged in 2027.

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