RBA minutes confirm potential August rate hike

The Reserve Bank of Australia (RBA) released the minutes from its June board meeting at which it held interest rates steady, but confirmed it did consider the possibility of a hike.

The minutes also confirmed the RBA is vigilant to the upside risks for inflation, but the evidence was not yet sufficient that inflation won't return to the target range of 2% to 3% within a reasonable time.

Commonwealth Bank senior economist Belinda Allen said the RBA will be relying on upcoming data to determine whether a rate hike will be necessary in August.

"The runway is shortening for our central scenario of a November easing, we too are watching the upcoming data," Allen said.

The case to hike in June included the same arguments as in May, but with some additions, Allen said.

"The same argument around if 'policy settings were not sufficiently restrictive to return inflation to target within a reasonable timeframe' and inflation could take longer to return to target was discussed," Allen said.

"This argument of course has strengthened with the release of the May CPI Indicator. Inflation expectations continue to be watched closely as well by the RBA."

The minutes also contained a discussion on whether demand was holding up better than expected, with the upward revisions in household consumption and the gradual strengthening of the global economic cycle pointing towards a potential rate hike.

"Ultimately the case to hold was the stronger one 'based on the view that the economy was still broadly tracking on a path consistent with returning inflation to target in 2026, while preserving as many of the gains in employment as possible'," Allen said.

"Leaving the cash rate on hold in June saw the board still convinced the evidence was there that inflation could return to target in a reasonable timeframe, while holding onto the gains in the labour market."