Reserve Bank of Australia raises rates and expects further tightening

At its December meeting, the Reserve Bank of Australia (RBA) raised interest rates by 25 basis points to a 10-year peak of 3.1%. This rate hike was the eighth increase this year.

According to RBA Governor Philip Lowe, the Board expects further interest rate hikes in the future. However, this hike is not on a pre-set course.

Lowe also adds that the size and timing of future rate increases will continue to be driven by incoming data. In particular, by the Board’s assessment of the outlook for inflation and the labor market.

The tightening trend will stop at least until the next RBA meeting in February. This will give Bank of Australia time to assess the impact of this year's rate hikes.

The decline in consumer inflation is a sign that the rate hike has begun to cool the economy. Quarterly inflation data is expected to peak at around 8% in the current quarter.

After the policy decision was released, the Australian dollar rose slightly to 0.6729. At the same time, the RBA's statement looked less dovish than the markets had expected.

Markets have raised their expected interest rate peak to around 3.6% by July next year. Prior, this peak was 3.5%.