The Reserve Bank of Australia (RBA) raised its cash rate by 50 basis points to 2.35% at its policy meeting earlier today, in line with expectations, while delivering 225 basis points of rate hikes in the past five months.
The central bank indicated interest rates were now closer to neutral, but also flagged more policy tightening ahead.
“Price stability is a prerequisite for a strong economy and a sustained period of full employment,” RBA Governor Philip Lowe said in a statement.
“The Board expects to increase interest rates further over the months ahead, but it is not on a pre-set path,” Lowe added.
Markets are now pricing another 50 basis point rate hike in October, while interest rates are seen at 3.00% by the end of 2022 and peaking at around 3.85% by mid-2023.
Inflation in Australia has reached a 21-year high of 6.1% and is expected to exceed 7% by year-end. Consumer inflation will probably not return to the upper bound of the RBA’s 2%-3% target range until late 2024.
“It’s possible that the Bank will only slow the pace of tightening if the Q3 inflation figures due at end-October show a moderation in price pressures,” Marcel Thieliant, a senior economist at Capital Economics, was quoted as saying by Reuters.
“Either way, we reiterate our long-held view that the Bank will ultimately lift the cash rate to 3.6%.”
The Australian Dollar demonstrated a somewhat muted reaction to RBA’s decision, with the AUD/USD pair remaining under pressure at levels close to September 1st seven-week low of 0.6771.
EUR/AUD was last gaining 0.67% on the day to trade at 1.4699, while being not far from the three-week high of September 1st (1.4741).