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Title : Australia's central bank hikes rates, says policy not on pre-set path

Aug 02, 2022 03:05AM ET

By: AnalysisWatch

The Reserve Bank of Australia on Tuesday raised interest rates for the fourth consecutive month, but tempered expectations of further hikes as it forecast faster inflation but also a slowdown in the economy.

At the conclusion of its August monetary policy meeting, the Reserve Bank of Australia (RBA) raised its interest rate by 50 basis points to 1.85%, the most dramatic tightening since the early 1990s.

"The Council expects to take further steps in the process of normalizing monetary conditions in the coming months, but it is not on a pre-established path," Lowe said.

Investors reacted by pushing the local dollar down 0.9% to $0.6963, while three-year bond futures rose 11 points to 97.280 as the market trimmed bets on the extent and speed of the rate hike.

Swap markets lengthened the odds of another half-point hike in September and moved to imply a high of around 3.31%, up from 3.41% prior to the RBA statement.

"The statement was on the moderate side of expectations, suggesting that the discussion at the September meeting could return to the 25 or 50 basis point debate," said Adam Cole, strategist at RBC Capital Markets.

Economic growth forecasts were lowered to 3.25% in 2022 and 1.75% in each of the following years. Previously, the bank had forecast growth of 4.2% in 2022 and 2.0% in 2023.

Lowe has received some criticism for the rapid series of hikes, with one local tabloid calling for him to leave his post.

Treasurer Jim Chalmers has defended the central bank's independence, although he has recently launched a review of policymaking and the board to see if it needs to be revamped.

On Tuesday, Lowe himself admitted that the bank was treading a "narrow path" between containing inflation and keeping the economy in "balance."

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