Australia’s central bank delivers another 25 basis points rate hike but tempers its hawkish stance

The Reserve Bank of Australia raised its cash rate by 25 basis points to 4.35%, the highest in 12 years, in line with expectations.

Inflation in Australia remains in a downward trajectory, though still elevated and pointing to risk it may stay higher for longer period that prompted the policymakers to further tighten its monetary policy and leave open possibility for further hikes.

However, the tone of the central bank’s statement was somewhat softer, as Governor Bullock said that further tightening will depend on economic data and assessments of risks, compared to the comments from the previous meeting which stated that further rate hikes may be required.

Markets saw today’s decision and subsequent comments as a step back and described it as a dovish hike, which contributes to signals that today’s hike might be the last of the recent tightening cycle, in which RBA raised rates by a total of 425 basis points since May 2022.

The fact that Australia’s economic growth slowed to 2.1%, the lowest in two years and expected to approach 1% in 2024, on full impact of high borrowing cost, contributed to the central bank’s softer tones.

RBA’s dovish shift deflated Australian dollar, which fell nearly 1% against its US counterpart during late Asian / early European session on Tuesday.