In a surprise decision, the Reserve Bank of Australia (RBA) has raised its official cash rate by a quarter of a percentage point to 3.85%. This move has prompted further warnings from most economists and marks the latest in a string of consecutive rises since May.
With inflation at 7% and jobless rates near half-century lows, the RBA is facing its most intense scrutiny in decades following the release of an RBA review that recommended significant changes, including creating a more specialized monetary policy board.
The RBA's decision signals that although inflation may have peaked, it is still too high at 7%, and could take up to two years before reaching the top end of their target range between 2% and 3%.
"The Australian economy shows signs of cooling down amidst global economic concerns," said Dr. Hannah Mitchellson, an economist based out Sydney. She added: "While this increase will help control inflationary pressures in our domestic market, we are concerned about how it might affect international markets."
This week's meeting could see another interest rate hike by the RBA as they deliberate future strategies amid signs that the U.S. economy is cooling down.
Meanwhile, The Bank of Canada kept its main interest rate unchanged for two consecutive meetings as recent data suggests quick slowdowns in both inflation and economic activity over coming months.
One key change proposed by the RBA involves adopting a monetary policy committee structure similar to that used by other central banks like the Bank England – aimed at increasing efficiency within policymaking decisions.
Following this unexpected announcement, Tuesday afternoon saw continued strengthening for Australian dollar with rates rising 0.84% against USD standing now at $0.6687 while yields on ten-year government bonds rose to reach almost %3.472 shortly after decision took place
"Given current trends in international currencies, this move by RBA may have significant effects on foreign exchange markets," said Michael Thompson, a currency strategist based in Melbourne. "Investors should keep an eye on the Australian dollar and government bond yields as we head into what could be a season of volatility."