The Australian central bank’s chief executive opened the door to a slowdown in monetary policy tightening after five interest rate hikes in as many months, sparking a rally in bonds. as markets reduced bets on further aggressive measures.
In a speech on the political outlook, Reserve Bank of Australia (RBA) Governor Philip Lowe said further rate hikes would be needed to contain inflation, but the RBA Board would not he was on a pre-set path and was aware that rates had already gone way up.
“We are aware that there are delays in the operation of monetary policy and that interest rates have risen very rapidly,” Lowe said.
“And we recognize that, all things being equal, the case for a slower pace of interest rate hikes gets stronger as the level of the cash rate rises.”
The RBA raised interest rates by half a point on Tuesday to a seven-year high of 2.35%, taking the increase since May to 225 basis points.
The very hint of a possible slowdown caused futures to lower the odds of another 50 basis point hike in October and rates are now seen as more likely to hit 3% in December, rather than 3.25%.
Three-year bond yields fell 10 basis points to 3.16%, and the Australian dollar fell 0.5% to $0.6732.