Australia’s central bank is ready to tighten policy further to prevent inflationary expectations from reigniting price rises, its governor said after surprising markets by raising interest rates to an 11-year high earlier on Tuesday.
Inflation is only projected to return to the top of the RBA’s 2-3 per cent target range by mid-2025, based on the bank’s latest forecasts on Tuesday. Headline inflation stood at 7.0 per cent in the first quarter, having eased from a 7.9 per cent peak. He said the flow of data supporting the latest rate hike included a tight labour market, upside risks in services price inflation and recent changes in exchange rates and house prices.
A slower return to the inflation target had been something that the RBA was willing to tolerate in order to preserve strong job gains, putting it at odds with hawkish central banks like the Federal Reserve and European Central Bank.