-- Stubborn inflation and sharply higher fuel prices pushed Australia's central bank to raise its cash rate by another 25 basis points to 4.35% on Tuesday, marking its third increase to borrowing costs this year.
Inflation was "already too high before the Middle East conflict" and will likely remain above the 2% to 3% target range for longer due to the recent surge in fuel and related commodity prices, the Reserve Bank of Australia said.
The rate decision was in line with market expectations and followed the previous week's headline consumer price index reading of 4.6% for the 12 months to March, a jump up from the 3.7% annual rate in February.
"Higher fuel prices are adding to inflation and there are indications that this is likely to have second-round effects on prices for goods and services more broadly," the central bank said. It expects the unemployment rate "to increase a bit" alongside a slowdown in household and business spending this year.
Tuesday's decision was almost unanimous, as eight policymakers voted for the hike and only one voted to leave the rate unchanged at 4.1%. The previous policy meeting in March was more closely contested, with five votes for an increase and four to hold the rate steady.
Under its baseline forecast, which assumes a quick resolution to the Middle East conflict and a decline in fuel prices, the central bank expects the domestic economy's growth to slow to 1.3% by the close of the year. However, it also warned of plausible scenarios where inflation is higher and activity lower than expected.
Speaking at a press conference following the policy meeting, central bank Governor Michele Bullock said the effects of the US-Iran conflict will linger through the year even if it is resolved quickly. She added that the resulting oil shock will worsen the country's housing crisis.
ANZ said the tone of the central bank's post-meeting statement was more hawkish than it expected.
"While the post-meeting statement did note that the board has 'raised the cash rate three times,' there was not the clear opening to a pause in June that we expected," ANZ said.