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Australia’s central bank has raised borrowing costs to the highest level since late 2011 as upside risks to inflation have materialized and global energy prices are overshooting forecasts made in August.
In a unanimous decision, board members voted to increase the benchmark cash rate target by 25 basis points to 4.6%, the Reserve Bank of Australia said Tuesday, delivering the fourth rate hike of the year with two policy meetings still to come.
The decision came as no surprise, with the market widely anticipating the increase following recent economic data as well as commentary from RBA Governor Michele Bullock, who said in a parliamentary address that persistently high inflation may necessitate a stronger policy response. Both the Commonwealth Bank of Australia and BofA Securities forecast an increase of 25 basis points.
The central bank continues to be wary of heightened uncertainties surrounding the outlook for the domestic economy and consumer prices, noting that recent inflation outcomes were stronger than expected as the Middle East conflict still grips global energy markets.
While labor market conditions have broadly eased as expected and growth in economic output has slowed, housing prices have retreated in most capital cities, and new housing loans have also fallen noticeably. The central bank said it is unsure about what impact the housing market’s downturn will have on the economy.
It added that three rate increases earlier this year had the desired effect of restricting access to credit, but more tightening is warranted to keep aggregate demand subdued and bring inflation back to within target. Policymakers are open to “increasing the cash rate target further if needed,” the central bank said.
At a press conference following the rate hike, Bullock said board members considered keeping the cash rate unchanged before reaching the decision to hike. The impact of the three earlier increases is yet to fully flow through, and a recession is not a base scenario under the central bank’s modelling following the latest hike, she said.
The Reserve Bank of Australia will next meet in November and again in December to decide on monetary policy.