RBA Board Divided on Rate Hike as Inflation Risks Loom

The Reserve Bank of Australia (RBA) has signaled its readiness to increase interest rates if upside inflation risks materialize, as revealed in the minutes from their August meeting.

A split board emerged, with some members prepared to hike rates on the crystallization of upside inflation risks while others preferred waiting for more data to assess the situation.

This internal division is seen as a signal that the data hurdle for the next meeting has shifted lower than what would be implied by a unanimous hold. The RBA's reaction function is thus considered directional, not on timing.

The distinction between a genuine hiking bias and an extended hold is crucial in this context. A genuine hiking bias keeps the short end of the Australian curve priced for possible tightening, supporting the currency through rate differentials.