Financial News: Australia Central Bank Hikes Rate By 25 Bps

Australia Central Bank Hikes Rate By 25 Bps

05/02/2023 - 01:05:00 (RTTNews)

(RTTNews) - Australia's central bank unexpectedly raised its benchmark interest rate by a quarter-point on Tuesday.

The monetary board of the Reserve Bank of Australia decided to hike the cash rate target by 25 basis points to 3.85 percent. Markets widely expected the apex bank to leave the rate unchanged today.

The board also lifted the rate paid on Exchange Settlement balances by 25 basis points to 3.75 percent.

"Given the importance of returning inflation to target within a reasonable timeframe, the Board judged that a further increase in interest rates was warranted today," Governor Philip Lowe said.

Lowe said the board's priority remains to bring inflation to the target. If high inflation becomes entrenched in people's expectations, it would be very costly to reduce later, involving even higher interest rates and a larger rise in unemployment, Lowe noted.

Further, medium-term inflation expectations remain well anchored, and it is important that this remains the case, he observed. "Today's further adjustment in interest rates will help in this regard," the governor added.

Regarding future policy, Lowe said some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe. Nonetheless, this will depend upon how the economy and inflation evolve.

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