Australia central bank raises rates to 10-year high, says more needed

SYDNEY - Australia’s central bank on Tuesday delivered a widely expected interest rate increase at its last policy decision of 2022 and said more increases are still needed ahead as policymakers seek to rein in inflation.

Wrapping up its December policy meeting, the Reserve Bank of Australia (RBA) lifted its cash rate by 25 basis points to a 10-year peak of 3.1 per cent, the eighth increase in as many months.

All 30 economists polled by Reuters had expected the RBA to go for another modest 25 basis-point rise, its third in a row after a succession of half-point increases.

“The board expects to increase interest rates further over the period ahead, but it is not on a pre-set course,” said RBA governor Philip Lowe in a statement.

“The size and timing of future interest rate increases will continue to be determined by the incoming data and the board’s assessment of the outlook for inflation and the labour market.”

The tightening trend will pause at least until February 2023, when the central bank next meets on policy after a year-end break, giving it time to assess the impact of the hefty 300 basis points in cumulative rate increases since May.

There are signs the rate rises may already have begun to cool the economy, with the monthly

consumer inflation rate easing in October,

although the recently launched data series does not include utility costs. The quarterly inflation series is expected to peak at about 8 per cent this quarter.

After the policy decision was released, the Australian dollar edged up slightly to US$0.6729, with the statement appearing slightly less dovish than markets had been looking for.

Markets have nudged up the expected peak for interest rates to around 3.6 per cent by July 2023, up from 3.5 per cent before the decision. REUTERS