- The Australian central bank surprisingly raised its key interest rate by 25 basis points on Tuesday.
- The Reserve Bank of Australia said: “Further monetary tightening may be needed to ensure inflation returns to target within a reasonable timeframe.”
- The Australian dollar gained 0.9% after the move, while shares in Australia fell.
The Sydney Opera House Sydney, New South Wales, Australia.
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Australia’s central bank raised interest rates by 25 basis points in a surprise move, opening the door for more rate hikes – resuming its tightening cycle after pausing at its previous meeting.
The Reserve Bank of Australia rose 25 basis points to 3.85%, beating market expectations. Economists polled by Portal had broadly predicted the central bank would keep rates on hold at 3.6% for a second straight meeting.
The Australian dollar continued to gain on Tuesday afternoon, rising 0.84% against the US dollar to 0.6687. The benchmark S&P/ASX 200 fell 0.9%.
The yield on the 10-year Australian government bond was 3.472% shortly after the decision.
The central bank highlighted that the nationwide inflation rate of 7% is still “too high”.
“While recent data showed a welcome decline in inflation, the key forecast remains that it will take a few years for inflation to return to the top of the target range,” the RBA said in its statement.
The central bank forecasts inflation of 4.5% for 2023 as a whole.
The RBA also left the door open for further rate hikes to bring inflation down to its 2% to 3% target.
“Further monetary tightening may be needed to ensure inflation returns to target within a reasonable timeframe, but that will depend on how the economy and inflation develop,” it said.
“The Board remains committed to bringing inflation back on target and will do whatever is necessary to bring this about,” he said.