Australia hikes rates

Australia's central bank on Tuesday raised interest rates for a fourth month running, but tempered guidance on further hikes as it forecast faster inflation but also a slowdown in the economy.

Wrapping up its August policy meeting, the Reserve Bank of Australia (RBA) lifted its cash rate by 50 basis points to 1.85 per cent, marking an eye-watering 175 basis points of hikes since May in the most drastic tightening since the early 1990s. Yet, RBA Governor Philip Lowe also made the outlook for policy more conditional.

"The Board expects to take further steps in the process of normalising monetary conditions over the months ahead, but it is not on a pre-set path," said Lowe.

The Reserve Bank of Australia lifted its cash rate by 50 basis points to 1.85 per cent, marking an eye-watering 175 basis points of hikes since May

That was taken as a dovish move by markets given Lowe had repeatedly stated the RBA Board wanted to get rates to a neutral level of at least 2.5 per cent, where it theoretically would neither stimulate nor retard economic growth.

Investors reacted by knocking the local dollar down 0.9 per cent to $0.6963, while three-year bond futures climbed 11 ticks to 97.280 as the market trimmed bets on how far and fast rates would ultimately rise.

Swap markets lengthened the odds on another half point hike in September and shifted to imply a peak of around 3.31 per cent, down from 3.41 per cent before the RBA statement.

"The statement was on the dovish side of expectations, suggesting that the discussion at the September meeting may well move back to the 25bp or 50bp debate," said Adam Cole, a strategist at RBC Capital Markets.