RBA Delivers Third Straight Hike, Cementing Outlier Status

qmrbbraznf4qt1[khseizysb_media_dl_2.png Australian Bureau of Statistics,

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(Bloomberg) — Australia’s central bank raised its key interest rate for a third consecutive meeting, underscoring its determination to tame stubbornly strong inflation and cementing its outlier status among global counterparts.

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The Reserve Bank’s nine-member policy committee opted to increase the cash rate to 4.35% from 4.1% by a vote of eight to one on Tuesday, unwinding all of last year’s cycle of monetary easing. 

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“Having raised the cash rate three times, monetary policy is well placed to respond to developments and the Board is focused on its mandate to deliver price stability and full employment,” the board said in a statement. “It will do what it considers necessary to achieve that outcome.”

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The currency swung between gains and losses as markets tried to assess how many more rate hikes the RBA is likely to deliver this year. Governor Michele Bullock’s press conference at 3:30 p.m. in Sydney is likely to provide some clues on the policy outlook.

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Most economists now anticipate a prolonged pause, while a handful see at least one more hike. The RBA’s tightening further separates Australia from international peers, ranging from the Bank of Japan to the Federal Reserve, which have remained on hold citing war-driven uncertainty. 

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Swaps traders priced another RBA rate rise in the third quarter, most likely in August, and an almost 60% chance of a fifth increase by year’s end

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“Inflation remains far too high and is showing no signs of returning to the mid-point of the target band anytime soon,” said Brendan Rynne, KPMG chief Economist. “In this context, the RBA appears willing to accept the trade‑off that comes with tighter policy — namely higher unemployment and a greater risk of below trend growth, in order to preserve credibility and ensure longer‑term inflation expectations remain firmly anchored.”

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He added that the central bank is “now realising that maintaining credibility in its inflation fight is more important than remaining fixated on full employment.”

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The RBA’s aggressive stance puts further pressure on the center-left government, a week out from the annual budget, which is expected to offer temporary cost of living relief to households from war-driven higher energy prices. 

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The US-Iran conflict has led to the effective closure of the Strait of Hormuz, the chokepoint connecting the Persian Gulf to global markets. Energy prices have soared as the waterway handled about one-fifth of the world’s oil and liquefied natural gas.

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The strait remains at the heart of the stalemate as the US has since imposed a naval blockade on Iran, seeking to squeeze the Islamic Republic’s economy by preventing it from shipping its own crude.

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Oil posted a sharp gain on Monday after the US and Iran exchanged fire amid renewed attacks on energy infrastructure and vessels in and around the strait, threatening a fragile four-week ceasefire. 

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“While we already had an inflation challenge in our economy the war in the Middle East is making this challenge worse, and we expect the impact of this to continue for some time,” Treasurer Jim Chalmers said in a statement. “The duration and severity of the conflict will determine how much more pressure it adds to global inflation and how much it is a hit to growth.”