Australia’s RBA Hikes Rates as Expected, Flags Wait-and-See Approach
By Ambar Warrick
Investing.com-- The Reserve Bank of Australia (RBA) raised interest rates as expected on Tuesday, and said it will adopt a data-driven approach to tightening policy as it moves to calm rampant inflation in the country.
The RBA raised its cash target rate by 50 basis points to 2.35% - its highest level since 2014. Today’s hike is the bank’s fifth raise so far this year.
In a prepared statement, RBA Governor Philip Lowe said domestic inflation is likely to increase in the coming months as the country grapples with higher food and fuel prices. Inflation will likely peak this year before trending lower next year.
Headline inflation, which rose 6.1% in the year to June, is at its highest level in nearly 30 years. This has severely impacted consumer spending and sentiment.
The RBA's annual inflation target is 2% to 3%.
The Australian dollar trimmed some gains after the rate hike, as Lowe warned that the bank was wary of the impact of high inflation and interest rates on household spending.
“The (monetary policy) Board expects to increase interest rates further over the months ahead, but it is not on a pre-set path. The size and timing of future interest rate increases will be guided by the incoming data and the Board's assessment of the outlook for inflation and the labour market,” Lowe said.
The RBA plans to factor household spending into its decision on raising interest rates further this year, Lowe said. While household spending has so far remained robust thanks to a tight job market, laggard wage growth - which has failed to keep up with inflation - may change this trend.
Lowe's comments also come amid a drastic drop in Australian consumer sentiment, with the mortgage and real estate market the worst affected.
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Australia’s RBA Hikes Rates as Expected, Flags Wait-and-See Approach