The Australian central bank loosened policy for the first time in four years, and after the interest rate cut, they firmly held the "data steering wheel".

The minutes of the February meeting show that the Reserve Bank of Australia's policy committee is cautious about future policy easing after the first rate cut in four years, fearing that rapid rate cuts may jeopardize the target midpoint of inflation returning to 2.5%. According to the minutes released on Tuesday from the meeting on February 17th-18th, the policy committee discussed scenarios of easing policy to stimulate economic growth or maintain current restriction levels. The policy committee ultimately concluded that the decision to cut rates by 25 basis points to 4.1% was more fully supported. This is because the upside risks to inflation have significantly diminished, to the extent that measures such as buying insurance like those taken in November 2023 are no longer needed to address potential inflation pressures. According to the minutes, the members unanimously agreed that their decision at this meeting does not mean they will further reduce the cash rate target at subsequent meetings. Although the economic results have given the members more confidence that they can pull the inflation rate back to the target level by lowering the cash rate, while retaining most of the benefits in the labor market, they unanimously agree that this is not guaranteed. Therefore, the minutes show that future decisions will depend on subsequent data. Financial market pricing suggests that the Reserve Bank of Australia will cut rates at least twice more, bringing the cash rate to 3.6% by the end of the year. The minutes highlight why Reserve Bank of Australia Governor Michele Bullock acted so cautiously last month after meeting market expectations with a rate cut. Although consumer prices have fallen back from the extremely high levels reached shortly after the pandemic, core inflation rates remain above the upper limit of the Reserve Bank of Australia's 2-3% target and are unlikely to reach the midpoint within the bank's forecast period. In expressing caution, the members also pointed out that in the post-pandemic era, Australia stands out globally as it has not raised rates significantly as other advanced economies have, and its labor market is much stronger than most of its peers. The minutes show that the committee "leans towards emphasizing downside economic risks." Members are particularly concerned about the risks of maintaining tight monetary policy in the long term. Another reason for proceeding with caution is that this would mean rates will remain at 4.35%. Last month, Bullock's deputy Andrew Hauser hinted in an interview that the rate-setting committee was considering another scenario, in which policy remains unchanged this year, leading to core inflation rates falling below the 2.5% target midpoint. The minutes also mention this, but do not provide more details. The minutes also suggest that the Reserve Bank of Australia remains sensitive to the possibility that consumption and employment markets may still be strong, potentially hindering the possibility of lowering core inflation to the target level. Data released after the Reserve Bank of Australia meeting shows that the Australian labor market remains strong, with the unemployment rate still at a low 4.1%, highlighting a mixed economic situation in recent times. Bullock stated that the tightness of the labor market will be a key area to watch, with job increases potentially reigniting price pressures. The next meeting of the Reserve Bank of Australia will be held on April 1st.