The Reserve Bank fears financial deterioration in China will batter the Australian economy as the OECD warns the Chinese government may have limited tools to counter the slowdown, which could act as a drag on growth globally.

The Reserve Bank board considered raising interest rates by a quarter percentage point earlier this month due to the threat of inflation remaining too high for too long, but risks from China’s downturn and unknown effects of previous rate rises led the board to keep the official cash rate at 4.1 per cent.

“A sharper slowing in China was a risk to the global outlook as Chinese policymakers navigated the longer-term challenges of slower structural growth,” minutes from the September board meeting said. “Lower output growth in China would also affect global output growth, which might in turn affect a range of Australian exports as well as prices of Australia’s imports.”

But the Reserve Bank noted those risks would be partly offset by a depreciation of the Australian dollar.

The central bank is also closely monitoring how quickly inflation falls and discussed the persistence of local services price inflation, noting the recent rise in petrol prices could make the task of getting inflation back to the bank’s target range of 2-3 per cent uneven.

The board believes further rate rises may be needed if inflation turns out to be more persistent.

“Members reaffirmed their determination to return inflation to target within a reasonable time frame and their willingness to do what is necessary to achieve that outcome,” the board minutes said.

The Paris-based Organisation for Economic Co-operation and Development expects global economic growth to slow as inflation continues to fall and interest rates bite, warning that China’s slowdown was a particular concern.

OECD modelling showed an unexpectedly large drop in China’s economic growth of 3 percentage points could directly cause global economic growth to fall by 0.6 percentage points, and countries with strong trade links with China “would be relatively hard-hit”.

“The scope for, and effectiveness of, offsetting policy support may also be more limited than in the past,” the OECD’s interim economic outlook report said.

Treasurer Jim Chalmers said the OECD report showed the global economy was in “an unpredictable place”.

“High interest rates, persistent inflation and the slowdown in China, particularly its struggling property sector, are all weighing on the global outlook,” he said.

“The OECD stresses the importance of countries rebuilding their fiscal buffers … this is consistent with the Albanese government’s budget strategy and is one of the reasons why delivering a surplus in 2022-23 is so important.”

The OECD’s forecast for Australian economic growth for this year remains 1.8 per cent.

The organisation expects inflation to continue falling steadily in Australia, to 3.2 per cent in 2024, but it said interest rates would need to remain in restrictive territory until there were clear signs the falls in inflation were longer lasting.