Australia hikes the prices, indicates at over-pulling ahead

May 3, 2023: Australia’s central bank, in a surprise move, increased its cash prices by 25 basis points and started the door for more hikes ahead, resuming its tightening cycle after pausing in its last meeting.

The Reserve Bank of Australia surged by 25 basis points to 3.85%, going against market anticipates. Economists polled by Reuters had widely anticipated that the central bank would keep prices at 3.6% for a second consecutive meeting.

The Australian dollar was stronger in Tuesday’s afternoon session, increasing 0.84% to 0.6687 against the U.S. dollar. The benchmark S&P/ASX 200 fell 0.9%.

The 10-year Australian government bond yield stood at 3.472% shortly after the decision.

The central bank highlighted the inflation price of 7% was still “too high.”

“While the late data showed a welcome refused in inflation, the central forecast remains that it takes many years before inflation returns to the top of the target area,” the RBA said.

The central bank forecasts 2023′s full-year inflation to stand at 4.5%.

The RBA left the door open for more rate hikes to decrease inflation to its aim of 2% to 3%.

“Some tightening of monetary policy may be required to ensure that inflation produces to target in a reasonable period, but that will depend upon the way the economy and inflation evolve,” it stated.

“The Board stays resolute in its decision to return inflation to target and will do what is important to accomplish that,” it said.