11/7/23, 4:26 PM Australia's central bank raises rates to 12-year high, tempers hawkish stance By Reuters

Australia's central bank raises rates to 12-year

high, tempers hawkish stance

© Reuters. Pedestrians walk past the Reserve Bank of Australia building in central Sydney, Australia, March 7, 2017.
REUTERS/David Gray/File Photo

By Wayne Cole

SYDNEY (Reuters) -Australia's central bank raised interest rates to a 12-year high on Tuesday, ending four months of steady policy, but
left it open on whether even more tightening would be needed to bring inflation to heel.

Wrapping up its November policy meeting, the Reserve Bank of Australia (RBA) raised its cash rate by 25 basis points to 4.35%, saying
recent data suggested there was a risk inflation would remain higher for longer.

"Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend
upon the data and the evolving assessment of risks," RBA Governor Michele Bullock said in a statement.

This was a step back from the October decision which stated that some further tightening "may be required", and was taken by markets
as a sign this might be the last hike of the cycle.

As a result, the local dollar slid 0.8% to $0.6435 and bond futures rallied as investors lengthened the odds on a further rise in
December.

"It was a dovish hike...it's not pointing to any immediate need for a follow-up," said Rob Thompson, rates strategist at RBC Capital
Markets.

"You'd think they'd have opened the door to a bit more than this, but they are just trying to do as little as possible. The hurdle to hike is
high."

Markets had favoured a move this week given policy makers had warned they had little tolerance for inflation which had surprised on
the high side in the third quarter. [AU/INT]

INFLATION PROVES STUBBORN

This was Bullock's first rate change since taking over as governor in September, and could go some way to burnish her inflation-fighting
credentials.

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11/7/23, 4:26 PM Australia's central bank raises rates to 12-year high, tempers hawkish stance By Reuters
Economic growth has already slowed to a two-year low of 2.1% and the RBA sees it approaching 1% in 2024 as the full impact of
higher rates bites.

Rates have now risen by 425 basis points since May last year, adding thousands of dollars to average mortgage repayments in easily
the most aggressive cycle on record for the RBA.

A hike had seemed possible since consumer price inflation topped forecasts in the third quarter to run at 5.4%, well above the RBA's
long term target range of 2-3%.

Bullock noted the central bank's own forecasts for CPI had been lifted to 3.5% by the end of 2024, from 3.3%, while inflation would only
reach the top of the target band by the end of 2025.

The hike puts the RBA in the odd position of being one of the very few developed world central banks still tightening, with markets
convinced rates in the United States, Canada and Europe have peaked.

The RBA Board had been prepared to tolerate a somewhat slower decline in inflation in order to keep Australia at full employment, an
economic feat not achieved since the 1950s.

Their patience ran out as inflation proved stickier than hoped in the service sector, while house prices rebounded to record highs and
unemployment stayed historically low at 3.6%.

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