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The Reserve Bank of Australia on Tuesday raised its benchmark lending rate by 25 basis points to 4.10%, going against market expectations of a pause, as inflation remains hot.
“Inflation in Australia has passed its peak, but at 7% is still too high and it will be some time yet before it is back in the target range (2%-3%),” said RBA Governor Philip Lowe. “While goods price inflation is slowing, services price inflation is still very high and is proving to be very persistent overseas.”
Lowe said further monetary policy tightening may be needed to bring inflation to the RBA’s target range “in a reasonable timeframe”.
The governor said a soft landing scenario may be difficult to achieve. “A significant source of uncertainty continues to be the outlook for household consumption,” he said. “Higher interest rates and cost-of-living pressures are leading to a substantial slowing in household spending.”
The Australian dollar jumped 0.8% to $0.6669 following the rate hike. Australian markets also fell, with the S&P/ASX 200 index ending 1.2% lower.
ETFs: iShares MSCI Australia ETF (EWA); Australian All Index (AS30); Invesco CurrencyShares Australian Dollar Trust ETF (FXA)
