(With details, context and market reactions)
by Wayne Cole
SYDNEY, June 7 (Reuters) – Australia’s central bank on Tuesday raised its main interest rate by half a percentage point, its biggest hike in 22 years, and warned that monetary policy tightening will continue. would continue in the months to come in order to curb inflation that is even stronger than anticipated.
Its key rate thus rose from 0.35% to 0.85%, while investors were expecting an increase of only 25 to 40 basis points.
“Given the current inflationary pressures in the economy and the still very low level of interest rates, the Board has decided to proceed with a 50 basis point hike today,” the RBA Governor said ( Reserve Bank of Australia), Philip Lowe, in a statement.
“The Council expects to take further steps to normalize the monetary situation in the coming months,” he added.
The RBA had already raised its key rate by a quarter of a point last month, its first hike since 2010, and many observers expected it to stick to hikes of the same magnitude.
The last half point hike in Australian rates was in early 2000.
In the foreign exchange market, the Australian dollar moved higher against the dollar just after the announcement of the RBA’s decision but then suffered some profit taking . Meanwhile, the yield on Australian three-year government bonds jumped 16 basis points to 3.27%, the highest since early 2012.
Futures markets are now pricing in an increased likelihood of a 50 basis point rate hike in July and a policy rate close to 1.5% by the end of August.
“The door is open to further increases of 50 points since inflation is practically the sole priority,” said Alvin Tan, analyst at RBC Capital Markets. “The RBA seems firmly committed to this position now and is moving towards a faster return to the neutral rate.”
Philip Lowe has in the past said that the neutral level for rates in Australia, the one at which rates do not influence growth either up or down, could be around 2.5%.
Inflation in Australia hit 5.1% in the first quarter, its highest level in 20 years, and could approach 6% in the second as energy, food, rent and housing prices continue to rise. construction cost.
New Budget Minister Jim Chalmers, appointed less than three weeks ago, has already warned Australians that they should expect the winter which will begin at the end of the month to be “difficult and expensive”.
(Report Wayne Cole, French version Marc Angrand, edited by Kate Entringer)