RBA hikes interest rates by 25 bps, sees sticky inflation

investing.com:

Investing.com-- The Reserve Bank of Australia hiked interest rates as expected on Tuesday, citing a slower-than-expected decline in inflation while also hiking its outlook for consumer inflation over the next two years.

The RBA hiked its official cash target rate to 4.35% from 4.10%, as widely expected by markets. The hike was the first change in monetary policy under new governor Michele Bullock, who had somewhat telegraphed the move in October.

Tuesday’s hike comes after Australian consumer price index (CPI) inflation grew more than expected in the third quarter, amid higher fuel prices and unexpectedly resilient retail spending.

Retail sales also blew past expectations in the quarter, underpinning inflation as spending remained strong.

This had invited some hawkish comments from Bullock before the meeting, and had markets largely primed for a 25 bps hike. 

“Inflation in Australia has passed its peak but is still too high and is proving more persistent than expected a few months ago. While the central forecast is for CPI inflation to continue to decline, progress looks to be slower than earlier expected,” Governor Bullock said in a statement on Tuesday.

“The (monetary policy) Board judged an increase in interest rates was warranted today to be more assured that inflation would return to target in a reasonable timeframe.” 

Bullock said that CPI inflation is now expected to be around 3.5% by end-2024, and is to remain at the upper end of the RBA’s 2% to 3% target range by end-2025. The RBA had earlier expected inflation to fall within its target range by mid-2025. 

Inflation has consistently remained above the RBA's target range for more than a year, following a post-COVID boom in growth.

Bullock also flagged a largely