RBA Hikes Rates to 15-Year High as Inflation Remains Stubborn

The Reserve Bank of Australia (RBA) has raised interest rates to their highest level in 15 years, hiking them by 25 basis points to 4.6%. This decision was made at a time when inflation remains high, with the Consumer Price Index (CPI) easing to 3.5% year-over-year in August but still above the target range of 2-3%. The RBA's aggressive policy pivot, which began with three consecutive rate hikes earlier this year, aims to restore price stability.

The central bank kept the door open for further tightening, reiterating its commitment to taking all necessary actions, including increasing the cash rate target. This decision was influenced by the IMF's recommendation to remain focused on containing inflation risks. The RBA also acknowledged the ongoing disruptions to global oil supply and their impact on domestic prices.

The swift cumulative tightening of 100 basis points since February may not be enough to curb inflation, however. Policymakers discussed a hold during their meeting, indicating that further tightening could be more contentious. Growth in consumer spending is easing, confidence is weak, and unemployment has risen to 4.6% in August.

The AUD/USD pair was volatile after the decision, reflecting markets' assessment of the path ahead. With oil prices and the AI boom stoking inflationary risks, officials will remain under pressure for additional rate hikes.