The Reserve Bank of Australia's Monetary Policy Board considered raising the cash rate by 25 basis points at its August meeting before ultimately deciding to hold, with members debating whether upside risks to inflation warranted pre-emptive action or whether existing policy settings were already sufficiently restrictive, according to minutes of the meeting released Tuesday by the bank.

The case for a rate rise centred on several upside risks to the inflation outlook, including the potential for a prolonged Middle East conflict to push oil prices sharply higher, the possibility of broader cost pass-through to consumer prices than assumed, among other factors, the minutes showed.

The case to hold rested on a judgment that the three rate lifts of this year had left financial conditions somewhat restrictive, that inflation had come in slightly below forecast in the June quarter, and the unemployment rate had risen slightly more than expected.

The board also discussed downside risks that could offset the upside scenario, including the potential for the labor market to ease more rapidly than assessed, a larger-than-expected drag on activity from weak consumer confidence and the housing downturn, and greater constraints on firms' ability to pass on cost pressures, the minutes added.

Several members judged it quite possible that upside risks would crystallize and require further tightening, while others pointed to the potential for downside risks to offset them, but all members agreed that upcoming decisions would benefit from additional information and reconfirmed their commitment to returning inflation to target in a timely way, the minutes showed.