Australia’s central bank raised its benchmark rate by a smaller-than-expected quarter point on Tuesday, after lifting rates by 50 basis points in each of the last four meetings.
This continued effort to bring inflation back to its target range.
The policy board of the Reserve Bank of Australia (RBA) decided to lift the cash rate target by 25 basis points, to 2.60 per cent, from 2.35 per cent.
This makes it the highest rate since July 2013.
The RBA has been tightening its monetary policy since May.
However, the rate hike pace was slower than the expected 50-basis point increase.
The board also increased the interest rate on exchange settlement balances by 25 basis points, to 2.50 per cent.
The board expects to increase interest rates further in the period ahead.
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 bank said.
Bank governor Philip Lowe said the latest action would help to achieve its goal of bringing inflation back to the 2-3 per cent target range.
This further increase in interest rates was likely to be required over the period ahead.
It was seeking to meet its aim while keeping the economy on an even keel, Lowe noted.
The path to achieving this balance was a narrow one and it was clouded in uncertainty.
He observed that one source of uncertainty was the outlook for the global economy, which had deteriorated recently.
Another was how household spending in Australia responds to the tighter financial conditions.
Capital Economics economist Marcel Thieliant said Australia’s consumers were still expected to hold up a bit better than most anticipated given the large buffers accumulated during the pandemic.
The economist added that interest rates will peak at 3.6 per cent by early next year, rather than the analyst consensus of 3.35 per cent.
