Australia’s central bank on Tuesday raised interest rates to their highest level in 10 years and maintained its forecast that more hikes are needed to cool inflation, a stance that was seen as slightly aggressive by markets as they looked for signs of a short-term pause.
At its last monetary policy meeting this year, the Reserve Bank of Australia (RBA) raised the interest rate by 25 basis points to 3.1%, marking the eighth hike in as many months and raising its rate hikes to 300 basis points since May.
All 30 economists polled by Reuters had expected the RBA to deliver another modest 25 basis point hike, the third straight after a succession of half-percentage-point gains.
In a statement very similar to others in recent months, RBA Governor Philip Lowe said the central bank’s governing council plans to raise interest rates in the coming period, but added that the path is not preset.
“The size and timing of future interest rate hikes will continue to be determined by the data received and by the board’s assessment of the inflation and labor market outlook,” Lowe said.
CBA’s head of Australian economics, Gareth Aird, who had forecast a pause in rate hikes after December, revised his forecast to add a further 25 basis point hike in February, which would push rates to a peak of 3.35%.
“The board has maintained a restrictive bias, as expected. But the governor didn’t soften the key paragraph around the future direction as much as we had anticipated,” Aird said.
The central bank will now have until at least February, when it meets again to discuss monetary policy after the year-end break, to assess the impact of its most aggressive tightening cycle in decades.
The quarterly inflation report, expected in January, is expected to show consumer inflation was around 8% in the fourth quarter compared with a year earlier, according to central bank forecasts.
Following the publication of the policy decision, the Australian dollar extended its rise to an intraday high of $0.6737.