The Reserve Bank of Australia (RBA) has lifted interest rates for a third straight meeting amid fears the Middle East oil crisis could make inflation worse before it gets better.
The central bank's monetary policy board voted in a split 8-1 decision to raise the official cash rate by 25 basis points to 4.35 per cent, as it wrapped up a two-day meeting on Tuesday.
The move was tipped by the majority of economists and financial markets, which had priced in the chance of a hike at about three quarters.
“There are materially heightened uncertainties about the outlook for domestic economic activity and inflation,” the RBA board said in its statement accompanying the decision.
“A longer or more severe conflict could put further upward pressure on global energy prices; this would push up near-term inflation and could also increase inflation further out as these costs are passed through .”
Even as the RBA board was considering its decision overnight, tensions in the vital Strait of Hormuz shipping lane continued to escalate.
Cargo ships and oil infrastructure were reportedly damaged as hostilities briefly resumed in the area, driving up oil prices and exacerbating fears that inflation could be higher for even longer.
Headline inflation surged to 4.6 per cent in the year to March, although many analysts believe the worst is yet to come as fuel prices flow through across the economy in coming months.
The rates decision was announced as the Reserve Bank released updated economic forecasts, in which the bank's staff economists lifted their near-term predictions for inflation.
Attention now turns to Governor Michele Bullock's post-meeting press conference, as traders try to guess whether the RBA has more hikes in store.
