Australia central bank hikes rates to a 10-month high

RBA split over timing as Mideast war rages

- STELLA QIU WAYNE COLE

Michele Bullock, governor of the Reserve Bank of Australia, speaks about RBA monetary policy during a news conference in Sydney yesterday.

(REUTERS)

Australia’s central bank raised rates for a second straight month in a tight call yesterday, warning of a “material” risk to inflation as policymakers stepped into a volatile global backdrop amid an intensifying Middle East war.

The Reserve Bank of Australia kicked off a critical week for major central banks as the US-Israeli strikes on Iran unleash an oil shock. The Federal Reserve and the European Central Bank are widely expected to keep interest rates unchanged, though the war threatens to throw their future calculus off course.

Wrapping up the March policy meeting, the RBA raised its main cash rate by 25 basis points to 4.1%, a 10-month high and undoing two of the three cuts it made last year, cautioning that risks to inflation have tilted further to the upside.

Markets had wagered on a 75% probability of a hike after senior RBA officials flagged the meeting as “live,” with inflation stuck above the 2%-3% target band and the labour market still running hot. All “Big Four” Australian banks tipped a rise.