Australia’s central bank raised its cash rate 25 basis points to a decade-high of 3.35% on Tuesday and reiterated that further increases would be needed, while dropping previous guidance that it was 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 of 2-3%.
Markets had expected a quarter-point move, with some risk of a bigger rise given recent inflation data had surprised on the high side. This was the ninth hike since last May, lifting rates by a total of 325 basis points.
Inflation is expected to decline to 4.75% this year and only slow to around 3% by mid-2025 – the top of the central bank’s 2-3% target range, according to the RBA’s latest forecasts.
A red-hot fourth-quarter inflation report doused hopes for a pause this month, with core inflation accelerating to 6.9% from a year ago, above the central bank’s previous forecast of 6.5%.
That led markets to double down on bets that the cash rate will have to peak nearer 3.85%, also in part to keep pace with the U.S. Federal Reserve. The Fed is now seen raising rates to above 5% to rein in still-strong price pressures.
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