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BLOOMBERG
Australia’s central bank weighed the risk of upside surprises to inflation from a tight labour market and rising home prices when it decided to deliver a surprise interest-rate increase this month.
The Reserve Bank’s board discussed the case to pause but concluded the “finely balanced†arguments were in favour of raising the cash rate to 4.1% — a level not seen since April 2012.
The decision came after a monthly inflation indicator for April unexpectedly accelerated. The central bank’s surprise June hike reflects accelerating services inflation, a tight labour market and a stabilisation in home-loan approvals which suggest that financial conditions may not be as tight as previously thought.
Another reason to extend its tightening cycle included disappointing productivity growth over recent times, an outcome that threatens to keep unit labor costs elevated. Board members observed some firms were indexing their prices.