SYDNEY: Australia’s central bank has raised its cash rate to an 18-year high on Tuesday in its fifth hike of the year, though a surprisingly narrow six to three vote signalled policymakers may be nearing the end of their tightening campaign.
Wrapping up its November policy meeting, the Reserve Bank of Australia’s (RBA) board lifted rates by 25 basis points (bps) to 4.85% and said it would continue to do what it considers necessary to bring inflation to target.
However, it did remove a reference to increasing the cash rate further if needed.
Markets seized on the less-hawkish tone, pushing the Australian dollar lower and strengthening bets that the RBA will leave rates unchanged at its meeting next month.
The Aussie dollar slipped 0.3% to US$0.6979 and three-year government bond futures fell four ticks to 95.13.
Thirty of 32 economists polled by Reuters expected a hike, while markets implied an 88% chance of a move after third-quarter inflation data and hawkish commets from policymakers eclipsed concerns on unemployment climbing to a five-year high.
“Given the revised inflation outlook and the continuing upside risks, the board judged that a further tightening in financial conditions is warranted to support the return of inflation to target,” the board said in a statement.
“The board will continue to do what it considers necessary to bring inflation sustainably back to target.”
The RBA’s 125 bps of tightening this year has more than reversed the 75 bps of policy easing from 2025, putting Australia at the hawkish end of developed market central banks.
Elsewhere, the Federal Reserve stayed on hold this month while the Reserve Bank of New Zealand stunned markets by pausing in a razor-thin vote.
“The challenge for the RBA is that inflation remains sticky just as growth momentum is beginning to slow,” said Katherine Palmer, head of fixed income strategy at BlackRock Australia.
“With the full effect of this year’s tightening still working its way through the economy, we expect the RBA to hold from here as it assesses incoming data and policy transmission, while retaining the option to tighten further if inflation pressures fail to ease,” Palmer added.
Stephen Smith at Deloitte Access Economics said the split six to three vote reflected the difficult trade-off facing policymakers as households cut spending and businesses grapple with softer demand.
“Today’s increase adds to the risk that growth will weaken by more than expected through next year, even as inflation stays elevated,” Smith said. — Reuters
