RBA switches to 'decidedly hawkish' tone

The Reserve Bank of Australia (RBA) switched to a "decisively hawkish" tone in the September Minutes, with a focus on the upside risks to inflation.

The board unanimously voted in favour of a rate hike, bringing the official cash rate to 4.6%, after concluding several inflation risks it had flagged in August had materialised, including broadening of the Middle East conflict and oil prices being significantly higher than assumed in the forecasts.

The RBA noted inflation continued to remain elevated with firms suggesting they would continue to pass on cost pressures to consumers.

"Members acknowledged that the trade-off between inflation and full employment had deteriorated because of global cost pressures," the minutes read.

"They confirmed that their strategy was still to return inflation to target in a timely manner, while preserving as many of the gains in employment as possible.

"However, executing this strategy in an environment of more persistent adverse supply shocks would require accepting slower growth in demand and employment than would otherwise be the case."

Commonwealth Bank head of Australian economics Belinda Allen said the Minutes suggest the board are not worried about weakness in some recent data.

"On the increase in the unemployment rate, there are concerns around data quality and forward-looking indicators are stable," Allen said.

"They also seem unconcerned about developments in the housing market, playing down the potential flow through of lower housing prices to the real economy, in particular household spending with little weight placed on the wealth effect."

Allen said the tone of the Minutes was hawkish and suggests a change in strategy from the board.

"The role of the Minutes is to explain the decision to lift the cash rate and as a result were decidedly hawkish. But the Minutes did not delve into the outlook from here and what the board will be watching next," she said.