Australia lifts rates to 15-year high; more hikes possible

The Reserve Bank of Australia raised its cash rate to its highest level in 15 years at its latest policy meeting, citing persistent inflation and a tight labour market.

The board increased the benchmark rate and noted that the balance of risks to inflation has not clearly shifted toward a sustained fall. It said future decisions will depend on upcoming consumer-price, wage and employment data.

The bank pointed to continued price pressures in services and domestic sectors, stronger-than-expected wages growth and solid household spending as reasons for keeping policy tight.

The RBA warned that if inflation does not ease in line with forecasts, further increases in the cash rate may be required.

Higher official rates raise borrowing costs for households and businesses. Lenders typically pass changes to holders of variable-rate mortgages and to new fixed-rate borrowers, increasing monthly repayments for many homeowners. Economists expect the housing market to face pressure as higher financing costs reduce demand for property.

The rate rise continues a multi-stage tightening cycle that began when inflation accelerated. The bank has lifted rates to slow demand and bring inflation back to its 2-3% target range while watching for effects on wages, spending and hiring.

The RBA said global conditions, including commodity prices and trade trends, remain relevant to its outlook. The board will review conditions at its next meeting.

“Further increases may be required if the data do not show a sustained easing of inflationary pressures,” the RBA said.