by Stella Qiu
SYDNEY (Reuters) – Australia’s central bank on Tuesday raised its main benchmark rate to its highest level in more than a decade but hinted it may be nearly done with monetary policy tightening as consumer spending slows and the risk of an inflation explosion wanes.
As expected, the Reserve Bank of Australia (RBA) raised its key rate by 25 basis points to 3.6%. This is its tenth rate hike since last May.
The central bank dropped any reference to further “hikes” in rates, instead indicating that “further tightening” would be needed, suggesting that just one more hike might be enough.
In the foreign exchange market, the Australian dollar, down 0.37%, fell to its lowest level in two months, as investors believe there is a greater likelihood that the RBA will stop its rate hike at 3.85%, rather than going up to 4.10% or more.
“Today’s statement is slightly more ‘dovish’ than last month’s and leaves open the possibility that there is only one more rate hike in this cycle,” said Sean Langcake, head of macroeconomic forecasts. at BIS Oxford Economics.
“The economy is slowing and wage growth was below the RBA’s expectations in the fourth quarter. This will temper some of its concerns about a wage-price spiral,” he added.
RBA Governor Philip Lowe has indeed said that wage growth is still consistent with the inflation target and that recent statistics suggest a lower risk of cross-linking between wage increases and those of price.
“The board remains alert to the risk of a price-wage spiral, however, given the limited slack in the economy and the historically low unemployment rate,” he said.
Annual wage growth accelerated to 3.3% in the fourth quarter, a high level but lower than expected by the consensus.
There are also signs that rising prices have dented household purchasing power and hurt consumer spending.
“In determining when and by how much further interest rates should rise, the board will be very attentive to developments in the global economy, trends in household spending, and the outlook for inflation and the labor market.” , said the governor.
For Gareth Aird, economist at Commonwealth Bank of Australia, this statement means that the RBA has not yet decided to raise its rate in April.
(Stella Qiu, French version Laetitia Volga, edited by Blandine Hénault)
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