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The Reserve Bank of Australia has released the minutes from its 3 May board meeting when the central banks surprised almost everyone and lifted its cash rate target from the record low 0.1% to 0.35%.

At the time, some prominent economists including Gareth Aird at the CBA said the RBA would hold off until its June meeting because governor Philip Lowe had repeated how he wanted to see the March quarter CPI and data on wages before moving. As the latter was not out until 18 May (tomorrow), Aird and some others assumed the first rate rise would not happen until the June (post-election) board meeting.

Anyway, today’s release of the minutes suggest that the members only considered three options, and all of them were for a rate rise. The 15 basis points option (which most economists predicted) was one of them, a 25bp option (which nobody picked, but was what the bank opted for), and an even higher increase to 40bp.

The smaller of the three was rejected as that stance was deemed “very stimulatory”, and was also inconsistent with an historical practice of raise rates in 25 bp moves. (A little surprising that history should be a factor since that 0.1% was a record.)

In its minutes, the RBA said:

An argument for an increase of 40 basis points could be made given the upside risks to inflation and the current very low level of interest rates.

In the end, the board opted for 25bp since that size “would help signal that the Board was now returning to normal operating procedures after the extraordinary period of the pandemic”.

And anyway since the board meets every month (save January), the RBA would “have the opportunity to review the setting of interest rates again within a relatively short period of time”.

As we saw in an earlier post here today, investors are predicting the RBA’s cash rate to climb at a rapid pace, reaching 3% by next March.

Oh, and what about wages? Well in the end, Lowe and other board members were satisfied with what they saw from the bank’s “liaison program” that found “labour costs were rising at a faster pace and that this was likely to continue”.

Looking ahead, growth in the [WPI] was forecast to be around 3.75% by the end of the forecast period, which would be the fastest pace since 2012.

Since that meeting, though, we’ve also seen the RBA’s quarterly monetary policy statement, which noted that it won’t be until 2024 – according to its forecasts – that wages will rise faster than inflation.

Worth keeping in mind given the recent political debate over what the Fair Work Commission will recommend for pay rises for those on the minimum wage. We’ll know who’ll be making that decision tomorrow, with a verdict due in late May or early June.