Australia’s central bank raised its cash rate to a 15-year high in its fourth hike of the year, saying some inflation risks have materialised and that it was prepared to hike further if needed.
Wrapping up its September policy meeting, the Reserve Bank of Australia board voted unanimously to lift rates by 25 basis points to 4.6%. That brought the tightening this year to a full percentage point.
The move was widely expected, but Governor Michele Bullock said the board did consider keeping interest rates steady this time, adding that the central bank is now trying to look ahead and see what the rate rises to this point will do to the economy.
“What we are predicting — what is the hope here — is that this will be restrictive enough, those four interest rate increases, to bring things down. Now, will it be enough? I don’t know,” Bullock said at the post-decision press conference.
The Aussie dollar slipped 0.4% and three-year government bond yields fell 6 basis points to 4.974%. Markets are implying a 33% probability for a hike in November but are almost fully pricing in a rise by February next year.
A vast majority of economists had predicted Tuesday’s hike given that inflation came in hotter than expected in July, oil prices had surged anew amid few signs of a resolution in the Gulf conflict, and policymakers had repeatedly warned that inflation risks could be materialising.
Brent crude has climbed nearly 20% since the RBA last met in August, threatening a broadening of price pressures.
Rising fuel costs are expected to have pushed headline inflation back up to 4.1% in August, well above the RBA’s target band of 2% to 3%, while underlying inflation likely remained sticky at 3.6%, data due on Wednesday are forecast to show.
“There have been further disruptions to global oil supply and recent data suggest that growth and inflation in Australia have been higher than expected,” said the board in a statement.
“The Board will continue to do what it considers necessary to bring inflation sustainably back to target, including increasing the cash rate target further if needed.”
Meanwhile, a data centre investment boom, estimated by Westpac to be worth as much as A$175 billion, is adding to domestic demand. RBA Deputy Governor Andrew Hauser recently returned from the US more worried about inflation after having seen the AI-driven investment frenzy firsthand.
