Australia's central bank lifts rates to 18-year high, split vote points to pause ahead
TLT•The Reserve Bank of Australia raised its cash rate by 25 basis points to 4.85%, an 18-year high, in a 6-3 vote. It dropped an explicit reference to further hikes, and markets increased bets on a pause next month.
1. Rate hike and split vote
The Reserve Bank of Australia raised its cash rate by 25 basis points to 4.85%, its fifth hike of the year. The 6-3 vote saw three board members favour no change, and the board removed a reference to increasing the rate further if needed while saying it would do what it considers necessary to bring inflation sustainably back to target.
2. Markets bet on a pause
Markets interpreted the board's tone as less hawkish, pushing the Australian dollar down 0.3% to $0.6979 and strengthening bets that rates will remain unchanged next month. Before the decision, markets had implied an 88% chance of a hike.
3. Inflation and growth pressures
The RBA raised its inflation forecasts materially and expects inflation to stay high for longer, even assuming rates remain around current levels for a year or more. Underlying inflation reached 3.7% in the third quarter, while unemployment rose to a five-year high of 4.7%; the bank still judges the labour market to be a little tight and a source of inflationary pressure.
