Economy
Australia's Central Bank Lifts Rates to 18-Year High, Split Vote Points to Pause Ahead
Australia's central bank raised its cash rate by 25 basis points to 4.85 percent on Tuesday, an 18-year high and its fifth hike of the year, though a split vote suggested the tightening cycle may be nearing its end.
Photo: Forextime.com / Wikimedia Commons (CC BY 2.0). Photo shows a stock market concept, not the Reserve Bank of Australia.
Australia's central bank raised its cash rate to an 18-year high on Tuesday in its fifth hike of the year, though the vote was closer than many expected, with three of the nine board members wanting to stay on hold.
Wrapping up its November policy meeting, the Reserve Bank of Australia's board lifted rates by 25 basis points to 4.85 percent and said it would continue to do what it considers necessary to bring inflation to target. However, it did remove a reference to increasing the cash rate further if needed.
The Aussie dollar slipped 0.3 percent to $0.6979 and three-year government bond futures fell 3 ticks to 95.14. Markets are wagering the RBA will be on hold in December after the split vote.
Thirty of 32 economists polled by Reuters expected a hike, while markets implied an 88 percent chance of a move after hot third-quarter inflation data and hawkish commentary from policymakers eclipsed concerns about unemployment climbing to a five-year high.
"Given the revised inflation outlook and the continuing upside risks, the Board judged that a further tightening in financial conditions is warranted to support the return of inflation to target," the board said in a statement.
The RBA's 125 basis points of tightening this year has more than reversed the 75 basis points of policy easing from 2025, putting Australia at the hawkish end of developed market central banks. Elsewhere, the Federal Reserve stayed on hold this month while the Reserve Bank of New Zealand stunned markets by pausing in a razor-thin vote.
Australian policymakers fear elevated oil prices could feed into broader price pressures in the economy and unmoor inflation expectations. Underlying inflation accelerated to a two-year high of 3.7 percent in the third quarter, after spending more than five years above the central bank's 2 percent to 3 percent target band.
The policy tightening has been felt most acutely in the housing market, which is on track for its biggest downturn in four decades. The labour market has also softened, with the unemployment rate hitting a five-year high of 4.7 percent, but the central bank still judges it to be a little tight and a source of inflationary pressures.
Source: Reuters
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