By James Glynn

SYDNEY--The Reserve Bank of Australia debated the possibility of raising interest rates further at its policy meeting at the start of this month, but ultimately decided to leave policy settings unchanged given recent signs that inflation had moderated further.

"Members noted that the data had evolved in a manner that gave them more confidence that inflation would return to target within a reasonable timeframe while allowing employment to continue to grow," the RBA said in the minutes of its February 5-6 board meeting

Still, the central bank remains highly anxious about the economic outlook and has not ruled out the prospect of further hikes over the coming months amid concerns that it could take longer than expected to cool inflation.

"Members agreed that it was appropriate not to rule out a further increase in the cash rate target," the RBA said.

It is forecasting that inflation will return to the 2% to 3% target band by late 2025, with unemployment expected to rise toward 4.5% by the end of this year, from 4.1% currently.

One of the bank's continued concerns is that inflation might take longer than anticipated to retreat, raising the likelihood that inflation expectations will remain high.

"Members also observed that the costs of inflation not returning to target within the envisaged time frame were potentially very high," the minutes said.

The RBA has raised interest rates aggressively since May 2022, with the last hike coming in November last year. It left the official cash rate steady at 4.35% this month.

Inflation in the fourth quarter of last year fell to a two-year low of 4.1%, around half of what it was a year earlier.

Still, the RBA expects the final battle with inflation to be the hardest, with services inflation proving sticky. Surging rents and insurance costs are just some of the areas that threaten to keep inflation higher for longer.

Write to James Glynn at

(END) Dow Jones Newswires

02-19-24 1953ET