SYDNEY, Aug 20 Reuters Australia39;s central bank judged a nearterm rate cut was unlikely and policy might need to stay restrictive for an extended period to ensure inflation can be tamed, after debating whether or not to hike at its August policy meeting.

Minutes of its Aug 56 board meeting out on Tuesday showed the Reserve Bank of Australia RBA considered raising its 4.35 cash rate as underlying inflation remained too high at 3.9 and financial conditions appeared to have eased, with a pickup in credit growth and house prices.

However, it decided the case to hold steady was the stronger one as it would best balance the risks to both inflation and the labour market, given prevailing uncertainty about staff forecasts, market volatility and expectations for rate cuts.

In particular, the board judged market pricing for rate cuts in the coming year, including a first easing by December, was incompatible with a return of inflation to the midpoint of the target band of 23 in 2026.

As a result, the RBA felt the need to push back against talk of a nearterm reduction in rates and might possibly keep rates steady for an extended period.

Members also observed that holding the cash rate target steady at its current level for a longer period than currently implied by market pricing may be sufficient to return inflation to target in a reasonable timeframe, but that the board will need to reassess this probability at future meetings, the minutes showed.

The board also stressed…