The Reserve Bank of Australia (RBA) has released the minutes from its December 2025 Monetary Policy Board Meeting, revealing growing concerns about persistent inflation risks. The Board opted to maintain the cash rate at 3.60%, but discussions indicated that monetary policy may not be as restrictive as previously believed.
In the minutes, members noted that recent inflation data, particularly the inaugural full monthly Consumer Price Index (CPI) release, pointed to potential upside risks for inflation in the near term. Headline inflation rose to 3.8% in October, with various indicators suggesting that cost pressures are becoming more widespread. Notably, unit labour costs and average earnings have exceeded expectations, while capacity-utilisation metrics indicated that the economy might be experiencing excess demand.
Debate Over Financial Conditions
The minutes underscore an ongoing debate within the Board regarding the current state of financial conditions. Some members expressed the view that conditions may no longer be restrictive, citing robust credit growth, intensified competition among banks, and increased housing activity following previous policy adjustments. Conversely, others argued that conditions remain mildly restrictive, referencing the ongoing impact of elevated mortgage prepayments, increased household savings, and the lagging effects of monetary policy.
Despite the mixed views on financial conditions, members acknowledged that labour-market conditions are “a little tight.” They highlighted low underutilisation rates, persistent difficulties in hiring, and revised estimates indicating excess demand. The recent uptick in the unemployment rate was characterized as temporary, diminishing the likelihood of significant easing in labour-market conditions.
The Board emphasized the importance of caution when interpreting the new monthly CPI data, noting its short history and inherent volatility, as well as the challenges associated with seasonal adjustments. Consequently, members agreed that quarterly CPI would remain the primary reference for assessing underlying inflation momentum, with the upcoming December-quarter data considered critical ahead of the February meeting.
Future Monetary Policy Considerations
While the Board agreed that it is premature to conclude that inflation persistence has materially increased, discussions included scenarios where an increase in the cash rate could be necessary in the coming year if capacity constraints and price pressures do not alleviate. The balance of risks has tilted towards the upside, reinforcing a cautious, data-dependent approach moving forward.
As the RBA navigates these complex dynamics, market participants will be closely monitoring economic indicators and the ongoing developments in inflation and labour conditions. The outcomes of these assessments could significantly influence monetary policy decisions in the near future.
