RBA raises interest rates for third straight meeting

THE Reserve Bank 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 8-1 to raise the official cash rate by 25 basis points to 4.35 percent, as it wrapped up a two-day meeting on Tuesday.

For an average borrower with a $600,000 mortgage, the three consecutive hikes since February will cumulatively add more than $270 a month in interest repayments.

The move was tipped by most economists and financial markets, which had priced in the chance of a hike at about three quarters.

Inflation was well above target before the Middle East conflict effectively closed the Strait of Hormuz, sending global energy markets into chaos.

Surging fuel prices have only amplified the central bank’s inflation headache.

But some analysts cautioned that the decision was no slam dunk.

The RBA also must consider the risks to employment as part of its dual mandate and the Middle East conflict is likely to hit economic activity.

Even as the RBA board was considering its decision overnight, tensions in the vital shipping lane continued to escalate. 

Cargo ships and oil infrastructure were reportedly damaged as hostilities briefly resumed in the vital shipping lane, driving up oil prices and exacerbating fears that inflation could be higher for even longer.

Headline inflation surged to 4.6 percent in the year to March, although many analysts believe the worst is yet to come as fuel prices flow through across the economy in the coming months.

The decision was announced as the Reserve Bank released updated economic forecasts, in which its staff economists raised their near-term inflation forecasts.

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.