Australia unexpectedly raises interest rates, signaling further tightening to come

  • In a surprise move, the Australian Central Bank raised interest rates by 25 basis points on Tuesday.
  • The RBA said, “Further tightening of monetary policy may be required to ensure that inflation returns to target within a reasonable time frame.”
  • The Australian dollar strengthened 0.9% after the move while stocks in Australia fell.

Sydney Opera House, New South Wales, Australia.

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The RBA in a surprise move raised interest rates by 25 basis points opening the door for more hikes to come – resuming the tightening cycle after stalling at their previous meeting.

the Reserve Bank of Australia It rose by 25 basis points to 3.85%, contrary to market expectations. Economists polled by Reuters widely expected the central bank to keep interest rates at 3.6 percent for the second meeting in a row.

The Australian dollar strengthened further in the afternoon session on Tuesday, rising 0.84% ​​to 0.6687 against the US dollar. The S&P/ASX 200 fell 0.9%.

The yield on the 10-year Australian Government Bond settled at 3.472% shortly after the decision.

Central Bank highlighted The national inflation rate is 7%. It was still “too high”.

“While recent data showed a welcome decline in inflation, the central expectation remains that it will take two years before inflation returns to the top of the target range,” the RBA said in its statement.

The central bank expects the inflation rate for the full year of 2023 to be 4.5%.

The RBA also left the door open for more interest rate hikes in the future, in order to bring inflation down to its target of 2% to 3%.

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“Further tightening of monetary policy may be required to ensure that inflation returns to target within a reasonable time frame, but that will depend on how the economy and inflation develop,” she said.

“The board remains firm in its determination to return inflation to the target level and will do what is necessary to achieve this,” she added.

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