After four months of stable policy, Australia's central bank lifted interest rates to a 12-year high on Tuesday. However, it did not say whether more tightening would be required to control inflation.
The Reserve Bank of Australia (RBA) hiked its cash rate by 25 basis points to 4.35% as it concluded its policy meeting in November, citing concerns about the possibility that inflation may stay higher for longer based on recent data.
"Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks," RBA Governor Michele Bullock said in a statement.
Markets interpreted this as a retreat from the October decision, which indicated that additional tightening "may be required" and that this might be the final hike of the cycle.
The local currency fell 0.8% to $0.6435 as a result, while bond futures increased in value as investors increased the likelihood of a further increase in December.
"It was a dovish hike...it's not pointing to any immediate need for a follow-up," said Rob Thompson, rates strategist at RBC Capital Markets.
"You'd think they'd have opened the door to a bit more than this, but they are just trying to do as little as possible. The hurdle to hike is high."
Given that policymakers had indicated they had little tolerance for inflation, which had surprised on the high side in the third quarter, markets had favoured a move this week.
This was Bullock's first rate adjustment since becoming governor in September, and it might help to bolster her reputation for combating inflation.
As the full effect of increased rates bites, economic growth has already fallen to a two-year low of 2.1%, and the RBA predicts that it will approach 1% in 2024.
In what is undoubtedly the most aggressive cycle the RBA has ever seen, rates have now increased by 425 basis points since May of last year, increasing the typical mortgage repayment by thousands of dollars.
Since consumer price inflation exceeded expectations in the third quarter, running at 5.4%—well above the RBA's long-term goal range of 2-3%—a raise had been likely.
Bullock pointed out that while inflation would only reach the top of the target band by the end of 2025, the central bank's own projections for the CPI had increased from 3.3% to 3.5% by that time.
With the markets certain that rates in the US, Canada, and Europe have peaked, the hike places the Reserve Bank of Australia in the unique position of being one of the few developed world central banks still tightening.
In order to maintain full employment in Australia—an economic achievement not seen since the 1950s—the RBA Board has been willing to accept a slightly slower rate of inflation fall.
Their patience ran out when housing values rose to record highs and unemployment remained historically low at 3.6%, but inflation in the service sector proved stickier than anticipated.
(Source:www.dnext.in)
The Reserve Bank of Australia (RBA) hiked its cash rate by 25 basis points to 4.35% as it concluded its policy meeting in November, citing concerns about the possibility that inflation may stay higher for longer based on recent data.
"Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks," RBA Governor Michele Bullock said in a statement.
Markets interpreted this as a retreat from the October decision, which indicated that additional tightening "may be required" and that this might be the final hike of the cycle.
The local currency fell 0.8% to $0.6435 as a result, while bond futures increased in value as investors increased the likelihood of a further increase in December.
"It was a dovish hike...it's not pointing to any immediate need for a follow-up," said Rob Thompson, rates strategist at RBC Capital Markets.
"You'd think they'd have opened the door to a bit more than this, but they are just trying to do as little as possible. The hurdle to hike is high."
Given that policymakers had indicated they had little tolerance for inflation, which had surprised on the high side in the third quarter, markets had favoured a move this week.
This was Bullock's first rate adjustment since becoming governor in September, and it might help to bolster her reputation for combating inflation.
As the full effect of increased rates bites, economic growth has already fallen to a two-year low of 2.1%, and the RBA predicts that it will approach 1% in 2024.
In what is undoubtedly the most aggressive cycle the RBA has ever seen, rates have now increased by 425 basis points since May of last year, increasing the typical mortgage repayment by thousands of dollars.
Since consumer price inflation exceeded expectations in the third quarter, running at 5.4%—well above the RBA's long-term goal range of 2-3%—a raise had been likely.
Bullock pointed out that while inflation would only reach the top of the target band by the end of 2025, the central bank's own projections for the CPI had increased from 3.3% to 3.5% by that time.
With the markets certain that rates in the US, Canada, and Europe have peaked, the hike places the Reserve Bank of Australia in the unique position of being one of the few developed world central banks still tightening.
In order to maintain full employment in Australia—an economic achievement not seen since the 1950s—the RBA Board has been willing to accept a slightly slower rate of inflation fall.
Their patience ran out when housing values rose to record highs and unemployment remained historically low at 3.6%, but inflation in the service sector proved stickier than anticipated.
(Source:www.dnext.in)