© Reuters. FILE PHOTO: An ibis bird perches next to the Reserve Bank of Australia headquarters in central Sydney, Australia, February 6, 2018. REUTERS/Daniel Munoz/File Photo
By Stella Qiu
SYDNEY (Reuters) – Australia’s central bank raised its cash interest rate 25 basis points to a decade high of 3.35% on Tuesday and reiterated that further increases would be needed, while abandoning previous guidance that it was not on a pre-established path.
Concluding its February policy meeting, the Reserve Bank of Australia (RBA) said core inflation had been higher than expected and higher rates would be needed to ensure inflation returns to its 2-target target. 3%.
Markets were expecting a quarter point move, with some risk of a higher rise as recent inflation data surprised on the high side. This was the ninth hike since last May, raising rates a total of 325 basis points. [AU/INT]
Inflation is expected to slow to 4.75% this year and to just around 3% by mid-2025, the top of the central bank’s 2-3% target range, according to the latest RBA forecasts.
A red-hot fourth-quarter inflation report dashed hopes of a pause this month, with core inflation accelerating to 6.9% from a year ago, above the central bank’s earlier forecast of 6.5%.
That led markets to double down on bets that the cash rate will have to peak closer to 3.85%, also in part to keep pace with the US Federal Reserve. raises rates above 5% to tame still-strong price pressures.
The RBA also expects economic growth to average around 1.5% during 2023 and 2024.
The local dollar soared to $0.6940 after the rate decision, extending earlier gains, while short-term bonds fell to 96.73, and markets raised the peak of cash rates to 3, 85%, compared to 3.75% previously.
A Reuters poll of 31 analysts found 19 expected rates would peak at 3.60%, likely in March, and stay there all year.