The Reserve Bank is keeping its options open going into the new year as uncertainties continue to complicate its soft landing for the economy.
At its last meeting in December, the central bank board considered a pause, a 25 basis point hike and a larger 50 basis point lift as possible options.
The central bank ultimately landed on the 0.25 percentage point lift to the official cash rate in December in its bid to chase down inflation that's still "too high".
In the minutes from the December meeting, board members again pointed to the lagging effect of rate hikes on economic activity.
"Moreover, it was possible that the policy changes might be transmitted to the economy more slowly than usual, given the higher share of mortgages taken out with fixed interest rates, households' large savings buffers and a summer holiday season without social restrictions for the first time in several years," the minutes said.
Despite the delayed impact of rate hikes, board members said it was still too early to hit the brakes given it would take "several years" to return inflation to the target range and there was no new evidence to the contrary.
The board also said no other central bank had paused yet.
A return to the larger 50 basis point increments seen earlier in the year was also discussed, with the possibility of strong wages growth triggered by the enduringly tight labour market a key point of concern.
Board members said some countries were starting to see evidence of a wage-price spiral and would potentially be forced to inflict a recession to return inflation to target.
"Australia was not yet in such a situation, but the inflation mindset was shifting, with firms more willing to put up prices than a year earlier and upside risks to wages growth potentially building."
For policy setting into the new year, the board has not ruled out any options.
"The board did not rule out returning to larger increases if the situation warranted.
"Conversely, the board is prepared to keep the cash rate unchanged for a period while it assesses the state of the economy and the inflation outlook."
Meanwhile, the 0.4 point drop in consumer sentiment as measured by ANZ and Roy Morgan's weekly survey follows a surprisingly resilient result the week before despite the RBA's December interest rate hike.
The 82.5 reading is well below the monthly average of 111.7 but over the past four weeks, the gauge has hovered within the low-80s range.
The manufacturing sector's post-pandemic tailwind has also come to an abrupt end as rising interest rates, high energy costs, acute labour shortages and lingering supply chain issues finally catch up with manufacturers.
After a strong September quarter, the Westpac-Australian Chamber of Commerce and Industry gauge of industrial business conditions has dropped sharply into negative territory.
The "actual composite index" fell from an elevated 64.6 in the September quarter to 49 in the December quarter.
A reading below 50 indicates declining conditions.
