by Wayne Cole
SYDNEY, Oct 4 (Reuters) – Australia’s central bank surprised markets on Tuesday by raising its main interest rate by 25 basis points, less than expected, but said further tightening of its monetary policy would still be necessary.
Following its October meeting, the Reserve Bank of Australia (RBA) raised its key rate to 2.60%, its highest level in nine years. This is the institution’s sixth rate hike in six months.
The central bank had recently signaled the possibility at some point of a slowdown in the rise in its rate, given the significant rise made since May.
Despite this, the markets had anticipated an increase of half a point, due in particular to the new hike of three quarters of a percentage point by the Federal Reserve in September.
“The rate has been increased significantly in a short time,” RBA Governor Philip Lowe said in a statement.
“In light of this, the Council has decided to raise the policy rate by 25 basis points this month as it assesses the outlook for inflation and economic growth in Australia,” he added. “The Board expects to raise rates further over the coming period.”
The Australian dollar widened its losses against the US dollar just after the announcement of the RBA’s decision. Interest rate futures are pricing in a likely spike in rates below the previously expected 4%.
“It sends a pretty big signal about the pace of future increases (..) The debates will now be about a 25 basis point hike or a status quo,” said Su-Lin Ong, at RBC Capital Markets.
(Report Wayne Cole, French version Laetitia Volga, edited by Matthieu Protard)