The RBA currently forecasts headline inflation - which was running at 7% last quarter - to return to the top of its target range of 2-3% by mid-2025, a slower path than many other economies as Lowe wants to preserve strong gains in the labour market. The Federal Reserve is expected to end a run of 10 straight rate increases next week while leaving the door open to a future rise in borrowing costs. Global policymakers are grappling with still-high inflation despite sharp increases in borrowing costs over the past 12-18 months, with some already pausing and others set to do so as their economies teeter on the brink of recessions.
"The Board remains alert to the risk that expectations of ongoing high inflation contribute to larger increases in both prices and wages, especially given the limited spare capacity in the economy and the still very low rate of unemployment." In the policy statement, Lowe said the latest rate increase will "provide greater confidence that inflation will return to target within a reasonable timeframe." Risks are likely skewed toward the RBA needing to move more than just once more," said Boyton. Markets have also moved to price in a 60% chance of another hike in July.Īdam Boyton, head of Australian economics at ANZ, expects the RBA to raise interest rates by another quarter-point in August. The Australian dollar jumped 0.8% to $0.6667, the highest in 2-1/2 weeks after the policy statement, while three-year government bond yields advanced 12 basis points to 3.660%, the highest since February. "The omission of this sentence reads hawkish in our view and may spell further rate hikes ahead from the RBA." "We think the Bank is no longer as confident as it was before on the trajectory of medium-term inflation expectations given that it dropped the sentence," said TD Securities' Asia-Pacific rates strategist Prashant Newnaha. Wrapping up its June policy meeting, the Reserve Bank of Australia (RBA) hiked the cash rate to 4.1%, saying inflation is still too high and removed a reference that stated "medium-term inflation expectations remain well anchored," which had been in policy statements since July last year. The hawkish message sent the local dollar surging and bond yields spiking, as markets quickly moved to price in an above even chance of a further rate increase next month. SYDNEY, June 6 (Reuters) - Australia's central bank on Tuesday raised interest rates by a quarter-point to an 11-year high, and warned that further tightening may be required to ensure that inflation returns to target.
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