RBA raises rates by 25 bps as expected, flags persistent inflation risks

The Reserve Bank of Australia raised its policy rate by 25 basis points on Tuesday, in line with expectations, and cautioned that inflation is likely to stay above target in the months ahead.

The unanimous decision lifted the cash rate target to 3.85% from 3.65%, following a renewed uptick in inflation late last year that pushed underlying price pressures back above the RBA’s 2%–3% target range.

The central bank said private demand remained resilient and domestic capacity constraints persisted, factors it expects will keep inflation elevated for some time. While some of the recent rise in inflation reflects temporary influences, the RBA noted that demand has been expanding faster than anticipated, capacity pressures are stronger than previously assessed, and labour market conditions remain tight.

The RBA stopped short of signalling further rate increases, instead reaffirming its commitment to maintaining price stability and full employment, and said it would take whatever action it deems necessary to achieve those objectives.

Sources: Ambar Warrick