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Reserve Bank Of Australia Hikes Rate To 3.10%

rba aug7 06dec22 lt

Australia's central bank raised its key interest rate on Tuesday, by a quarter-point for a third straight policy meeting, thus slowed the pace of rate hikes from a more aggressive 50 basis points previously as policymakers turned less hawkish amid expectations for slower economic growth ahead.

The policy board of the Reserve Bank of Australia, governed by Philip Lowe, decided to lift the cash rate target by 25 basis points to 3.10 percent, the highest since late 2012.

The interest rate on exchange settlement balances was also raised by 25 basis points to 3.00 percent.

The current policy tightening has taken the cash rate target to 3.10 percent from 0.10 percent, indicating a total 300 basis-point increase April 2022.

The RBA board expects to increase interest rates further over the period ahead, but said it is not on a pre-set course.

Policymakers repeated that the size and timing of future interest rate increases will continue to be determined by the incoming data.

Major central banks are likely to turn less aggressive in tightening monetary policy in the coming months as most economies are headed for a recession and inflation is showing signs of taking a brief reprieve for now, amid a slowdown in energy price growth.

It is difficult to argue that the Australian central bank is backing away from rate hikes just yet, Capital Economics' economist Marcel Thieliant said.

The RBA will want to see solid evidence that inflation is slowing rather than just plateauing at very high levels and it will take a few more months for that evidence to accumulate, the economist noted.

The RBA board observed that that monetary policy operates with a lag and that the full effect of the increase in interest rates is yet to be felt in mortgage payments.

Household spending is likely to slow over the period ahead although the timing and pace of slowdown is uncertain.

"The path to achieving the needed decline in inflation and achieving a soft landing for the economy remains a narrow one," Governor Philip Lowe said.

RBA's central forecast suggested that CPI inflation will decline over the next couple of years to be a little above 3 percent over 2024.

The RBA forecast the economy to grow around 1.5 percent this year and next.

Economists widely forecast the economy to grow at a slower pace of 0.7 percent in the third quarter after 0.9 percent expansion posted in the preceding period. The third quarter GDP data is due on Wednesday.

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