Arguments of three Reserve Bank of Australia members who pushed for interest rate cut revealed

The arguments inside the Reserve Bank of Australia boardroom by three members who unsuccessfully voted to slash interest rates this month have been revealed.

The three Reserve Bank of Australia board members who unsuccessfully voted to cut interest rates this month were worried about Australia’s sluggish economic growth and believed inflation was on track to continue declining, it has been revealed.

The RBA announced its shock decision earlier this month to leave the cash rate unchanged – a move which was described as “soul crushing” for homeowners desperately needing mortgage relief.

It was at odds with key economists and all four major banks which predicted a cut of 25 basis points. The decision left the cash rate at 3.85 per cent.

The reasons behind the policy decision – which was voted by six in favour and three against – have now been released in minutes from the Board’s meeting.

The three Reserve Bank of Australia board members who voted to cut interest rates were worried about Australia’s sluggish economic growth. Picture: Christian Gilles

The members that voted to slash rates said it would prevent the risk of spare capacity from developing – when an economy’s ability to produce goods and services exceeds the current demand for those goods and services.

They also raised concerns about slowing economic growth, both globally and in Australia, and thought there was enough evidence to show inflation was already declining.

“The case to lower the cash rate target at this meeting rested on a view that there was already sufficient evidence to be confident that inflation was on track to be sustainably back at the midpoint of the target range, if not lower,” the minutes read.

The RBA announced its shock decision earlier this month to leave the cash rate unchanged. Picture: Christian Gilles

“This implied less need to wait before easing policy further, which was a relevant consideration given the lags in the effect of monetary policy on economic activity and inflation.

“Uncertainty in the world economy remained pronounced and the material increase in US tariffs – even if not as extreme as had been announced in early April – would be a drag on future growth abroad, and thereby domestic economic activity and inflation.

“GDP growth in Australia was already subdued, the saving rate had risen, the underlying momentum in wages growth and services price inflation appeared to be lower and some concerns were expressed that the recent data suggested a loss of momentum in activity.”

The members also expressed concern around overall employment growth.

They doubted whether market sector employment growth – jobs in businesses and industries that sell goods or services – would grow enough to offset an expected slowing in non-market sector employment growth – like government or community services.

But the majority of members were not persuaded, opting instead to keep the cash rate on hold.

Those that voted to keep the cash rate unchanged didn’t want to lower rates too soon and risk pushing inflation too far below target.

The majority of members were not persuaded, opting instead to keep the cash rate on hold.

“They believed that lowering the cash rate a third time within the space of four meetings would be unlikely to be consistent with the strategy of easing monetary policy in a cautious and gradual manner to achieve the Board’s inflation and full employment objectives,” the minutes read.

“While the flow of recent data had been broadly in line with earlier forecasts, they judged that some data had been slightly stronger than expected.

“Therefore, these members argued that it would be prudent to wait for confirmation that inflation would sustainably return to target as forecast before easing policy further.

“They noted that the Board would receive important information before the next meeting, including another quarterly inflation report and additional information on the labour market and how the world economy is evolving, along with a revised set of staff forecasts.”

More than 90 per cent of economists had expected the RBA to cut rates on July 8 – and the market had similar expectations.

Mortgage holders will now have to wait until August at the earliest to get further interest rate relief.

The most recent rate cut saw the RBA publish an unattributed record of votes for the first time, but they didn’t name which directors voted for or against.

The Board is made up of nine members – governor and chair Michele Bullock, deputy governor and deputy chair Andrew Hauser, Marnie Baker AM, Renée Fry-McKibbin, Ian Harper AO, Carolyn Hewson AO, Iain Ross AO, Alison Watkins AM and Jenny Wilkinson PSM.

Originally published as Arguments of three Reserve Bank of Australia members who pushed for interest rate cut revealed