Reserve Bank of Australia raises interest rates by 0.25% as inflationary pressures persist

The Reserve Bank of Australia raised interest rates by 25 basis points from 3.60% to 3.85% in a unanimous vote and widely expected decision.

This was the RBA’s first hike in two years and came just six months after its last rate cut in August.

The Australia’s central bank and the Bank of Japan are now the only two major central banks that started to tighten their monetary policies, in comparison Fed and BOE which remain on track for further easing, while the ECB is likely to keep rates unchanged for some time.

Today’s decision signal that Australian policymakers struggle to bring inflation under control and that the central bank may remain on tightening path.

The board expects inflation to remain above target for some time, as private demand is growing faster than expected, capacity pressures are greater than initially thought and labor market conditions are also tighter, that offsets assessment that inflation pick-up would be driven by temporary factors.

RBA Governor Michelle Bullock, in the post rate decision press conference, highlighted that the central bank is uncertain whether current financial conditions were restrictive and added the board will continue to closely watch incoming economic data, which would provide more details about the economy and inflation and influence policy shape in the near future.