The Reserve Bank of Australia raised its cash rate target by 25 basis points to 4.85% on Tuesday, taking borrowing costs to their highest level since late 2008. The move was in line with market expectations, although three of the nine members on the rate-setting board voted to leave the rate unchanged.
It was the RBA’s fifth rate increase this year. The bank said further tightening could be required as inflation remains difficult to bring down. Higher energy prices linked to the Middle East conflict, strong domestic demand and investment in artificial intelligence have contributed to Australian consumer price inflation reaching a near three-year high, according to the report.
Underlying inflation, measured by trimmed mean CPI, also remained above the RBA’s 2% to 3% target range. The bank said its revised outlook and continuing upside risks justified tighter financial conditions to help return inflation to target.
The RBA expects inflation to remain above 3% over the coming year and warned that higher inflation expectations could become entrenched. Governor Michele Bullock had told lawmakers the previous week that inflation was still too high and likely to remain elevated in the months ahead, while raising the possibility of further rate increases.
Sources: Investing.com News.