Australia Signals Policy Flexibility After Half-Point Rate Hike

Australia’s central bank gave itself wriggle room to adjust the pace of interest-rate increases if the economic outlook deteriorates after delivering the sharpest policy tightening in a generation, Bloomberg News reported. “The board expects to take further steps in the process of normalizing monetary conditions over the months ahead, but it is not on a pre-set path,” Governor Philip Lowe said after hiking by 50 basis-points for a third straight month to 1.85%. The “size and timing” will be “guided by the incoming data.” The currency declined and bonds rallied as the market interpreted Lowe’s statement as an echo of Federal Reserve chief Jerome Powell’s shift last week to give himself more flexibility on policy. Yields on 10-year government bonds tumbled 9 basis points to 2.97%, the currency fell below 70 US cents and the benchmark stock index erased losses. “While the language and sentiment are not new, the emphasis appears a little stronger in laying the groundwork back to a more modest pace of tightening,” said Su-Lin Ong, chief economist for Australia at Royal Bank of Canada. The Reserve Bank has rapidly tightened policy, hiking 175 basis points since May, and joining global counterparts from Washington to Wellington in trying to prevent consumer prices spiraling out of control. Headline inflation in Australia last quarter was running at twice the top end of the central bank’s 2-3% target. Read more.
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