Lamp posts in front of the Reserve Bank of Australia (RBA) building in Sydney, Australia, on Monday, Feb. 6, 2023.
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The Reserve Bank of Australia on Tuesday again defied market expectations, raising its benchmark rate by 25 basis points to 4.1%.
Economists polled by Reuters were widely expecting the central bank to hold rates steady. Consequently, Australian stocks fell further on the news, with the S&P/ASX 200 last trading 1% lower. The Australian dollar was up by 0.73% to 0.6667 against the U.S. dollar shortly after the decision, with the central bank grappling with the latest inflation rate of 7% for the March quarter.
Reserve Bank of Australia’s Governor Philip Lowe said while inflation in the nation may have “passed its peak,” there are still indicators showing inflation persisting.
“Recent data indicate that the upside risks to the inflation outlook have increased and the Board has responded to this,” Lowe said in Tuesday’s statement.
“This further increase in interest rates is to provide greater confidence that inflation will return to target within a reasonable timeframe,” Lowe added.
The central bank’s target for inflation is a range between 2% to 3%.
“If high inflation were to become entrenched in people’s expectations, it would be very costly to reduce later, involving even higher interest rates and a larger rise in unemployment,” Lowe said.
The governor’s statement added that there may be further rate hikes required to bring down the nation’s inflation rate, adding that it will “depend upon how the economy and inflation evolve.”
“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe … The Board will continue to pay close attention to developments in the global economy, trends in household spending, and the outlook for inflation and the labour market,” Lowe said.
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Source link: https://www.cnbc.com/2023/06/06/australias-central-bank-hikes-rates-by-25-basis-points-defies-expectations.html