The Reserve Bank of Australia (RBA) released the minutes from its December 2025 Monetary Policy Board meeting, revealing growing concerns that inflationary pressures may be more persistent than previously anticipated. This uncertainty has led to diminished confidence that current monetary policy remains sufficiently restrictive.
At the meeting, the Board unanimously decided to keep the cash rate steady at 3.60%. However, members noted that recent inflation data, including the first full monthly Consumer Price Index (CPI) release, indicated near-term upside risks. Headline inflation rose to 3.8% in October, and multiple indicators pointed to broadening cost pressures. In particular, unit labour costs and average earnings exceeded expectations, while measures of capacity utilisation suggested the economy might be experiencing some excess demand.
The Board emphasised caution when interpreting the new monthly CPI series due to its limited history, high volatility, and seasonal adjustment challenges. Consequently, members agreed that the quarterly CPI would remain the primary tool for assessing underlying inflation momentum for the time being. The December quarter CPI data will be especially important ahead of the February meeting.
A key focus of discussion was whether financial conditions remain restrictive. Some members believed they may no longer be so, citing stronger credit growth, intensified competition among banks, low risk premia, and a noticeable rise in housing activity following earlier policy easing. Conversely, others argued that conditions were still mildly restrictive, pointing to elevated mortgage prepayments, higher household savings, and the delayed effects of monetary policy action yet to manifest.
Labour market conditions were assessed as still “a little tight.” The Board noted low underemployment, ongoing hiring difficulties, and upward revisions in estimates of excess demand. The recent increase in the unemployment rate was considered temporary and unlikely to signal a significant easing in labour-market pressures.
Although it is too early to definitively conclude that inflation persistence has risen materially, members discussed scenarios where a cash rate hike could be necessary during the coming year if capacity constraints and price pressures persist. For now, the risk balance has shifted towards the upside, supporting a cautious and data-dependent approach to policy.
For forex traders, these minutes highlight the RBA’s increased vigilance over inflation and signs of a potentially less restrictive financial environment, with the possibility of future rate hikes if inflationary pressures continue. The upcoming December quarter CPI data will be critical in shaping the Bank’s next moves, making it a key event to watch for AUD currency dynamics in early 2026.
Original Source: Eamonn Sheridan of investinglive.com
