Australia’s central bank hiked its key interest rate by a quarter-point to a more than 10-year high and signaled more tightening to combat high inflation.
The policy board of the Reserve Bank of Australia decided to lift the cash rate target by 25 basis points to 3.60 percent. The decision was as widely expected. This was the highest rate since May 2012.
The interest rate on Exchange Settlement balances was also raised by 25 basis points to 3.50 percent.
The RBA has tightened its monetary policy by a cumulative 350 basis points since May 2022.
The bank said it aims to bring inflation back to the 2-3 percent target range while keeping the economy on an even keel. The path to achieving a soft landing remains a narrow one, the bank added.
“The board expects that further tightening of monetary policy will be needed to ensure that inflation returns to target and that this period of high inflation is only temporary,” RBA Governor Philip Lowe said.
“The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that,” Lowe said.
The RBA forecast inflation to decline this year and next. The rate was projected to be around 3 percent in mid-2025.
The economy managed to avoid a contraction in the fourth quarter. Gross domestic product grew 0.5 percent in the December quarter. The central bank forecast economic growth over the next couple of years to be below trend.
Policymakers expect unemployment to increase as economic growth slows.
With the inflation outlook still too high it is too early to pause in April, Westpac economist Bill Evans said.
The RBA is expected to lift the cash rate to 4.1 percent by May and the first interest rate cut would be possibly in May 2024, Capital Economics’ economist Marcel Thieliant said.
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