Australia: Central Bank hikes rates in March
Second straight hike: At its March meeting, the Central Bank decided to hike the cash rate from 3.85% to 4.10%, following a same-sized hike in February. This followed 75 basis points of cuts last year.
Inflation concerns motivate hike: The Bank decided to tighten its monetary stance due to elevated inflation in recent months, as well as the Bank’s belief that inflation could remain above the 2.0% to 3.0% target “for longer than previously anticipated.” The latter is linked to higher fuel prices due to the Iran war.
Further hikes are possible ahead: The Bank’s forward guidance was open-ended. Another rate hike is a distinct possibility in the near term as the Bank looks to quell inflation.
Panelist insight: On the outlook, Goldman Sachs analysts said:
“The risk of a third consecutive rate hike in May is material (GS: 30% subjective probability) but not our base case – partly because we view the pick-up in inflation over 2H2025 as mostly driven by ‘administered’ and sector-specific prices rather than ‘excess demand’ in the economy.”
ANZ analysts said:
“We expect an additional 25bp increase in May which would take the cash rate to 4.35%.
That level of interest rates, combined with the negative impact on household finances and
demand from the energy price shock, should mark the end of this tightening cycle.”