Australia central bank raises rates by 25 bps to 3.35%

The RBA said core inflation had been higher than expected and higher rates would be needed to ensure that inflation returns to its target range of 2% to 3%. — Reuters

SYDNEY: Australia’s central bank raised its cash rate 25 basis points (bps) to a decade-high of 3.35% yesterday and reiterated that further increases would be needed, while dropping previous guidance that they were not on a pre-set path.

Wrapping up its February policy meeting, the Reserve Bank of Australia (RBA) said core inflation had been higher than expected and higher rates would be needed to ensure that inflation returns to its target range of 2% to 3%.

Markets had expected a quarter-point move, with some risk of a bigger rise given recent inflation data that surprised on the high side. This was the ninth hike since last May, lifting rates by a total of 325 bps.

“The board expects that further increases in interest rates will be needed over the months ahead to ensure that inflation returns to target and that this period of high inflation is only temporary,” governor Philip Lowe said in a statement.

Markets were surprised by the hawkish tone of the RBA which shattered any expectations of an imminent pause to the tightening campaign.

Futures market has priced in a peak rate of 3.9%, implying at least two more rate hikes in March and April, compared with 3.75% before the decision.— Reuters