Australia's central bank restarted rate increases on Tuesday, raising the cash rate from 4.35% to 4.6%. All nine board members backed the move. It is the fourth increase this year and pushes borrowing costs to their most elevated point in roughly 15 years.
The bank had kept rates on hold at 4.35% for its past two meetings after raising them at the first three gatherings of the year. With Tuesday's move, cumulative tightening this year totals 1 percentage point.
The board said signs of upside inflation risks have started to emerge, citing sturdy domestic demand and more expensive energy. It noted that higher fuel costs are feeding through into broader prices on top of capacity strains in the economy, and stressed it remains focused on preventing high inflation from becoming entrenched. According to the statement, the board intends to take whatever steps it deems necessary to return inflation to target, "including increasing the cash rate target further if needed."
Governor Michele Bullock later sounded cautiously optimistic that the hikes delivered so far can do the job and said the board had even debated extending its pause. "What is the hope here is that this will be restrictive enough - those four interest-rate increases - to bring things down," she added. "Now will it be enough? I don't know. I'm not going to give forward guidance."
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RBA officials had flagged a tougher stance in recent weeks and a willingness to act to steer inflation back into the 2 to 3% band. The bank also moved in step with peers in Europe, the US and Japan that raised rates this month to counter price pressures linked to the US-Iran war and the resulting surge in global energy costs.
Traders had expected the hike, but they heard Bullock as less hawkish than the written statement. Yields on policy-sensitive three-year notes fell 8 basis points, the Australian dollar slipped below 70 US cents - a threshold last breached in early August - and the implied probability of a November follow-up eased to about 45% from near 61% before the press conference. Markets still lean toward one more increase this cycle, with the peak seen below 5%.
Two reports now carry extra weight for the path ahead: August's monthly inflation read due Wednesday and the RBA's preferred quarterly update, which lands before the November meeting. Higher rates are poised to intensify strain on a housing market that is already sliding, and could further lift unemployment after last month's rise to 4.6%. For household budgets, watch the line from the RBA about companies facing higher costs and passing them on or planning to. If those pressures hang around, borrowing stays tough and prices stay sticky; if they cool, the bank may be close to done.
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