Australia's central bank resumed raising interest rates on Tuesday in a widely anticipated move, while signaling a higher hurdle to further tightening, sending the currency lower.

The Reserve Bank lifted its cash rate to a 12-year high of 4.35%, a decision predicted by 29 of 32 economists polled by Bloomberg. The RBA and Bank of Japan had been the only major developed central banks expected to move in the next six months, with the remainder seen on hold or even cutting.

"Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks," RBA Governor Michele Bullock said in her post-meeting statement.

The Aussie dollar fell 0.4% to 64.66 US cents at 2:38pm in Sydney and the policy-sensitive three-year government bond yields fell 1 basis point to 4.26%. Traders trimmed their expectations for a 2024 rate hike to about 50%, from 60% odds seen earlier on Tuesday.

The central bank's decision to end a four-meeting pause followed stronger than expected inflation data, suggesting it has more work to do to restrain prices. Australia has moved slower than global counterparts in its policy response, having raised rates by 4.25 percentage points compared with 5.25 points in New Zealand and the US.

The RBA's slower pace reflects its efforts to bring the economy in for a soft landing. Bullock and her colleagues are also mindful of the impact of tightening on Australia's highly geared borrowers who are overwhelmingly on variable rates, unlike the US where most mortgages are fixed for 30 years. 

Money market pricing implies the RBA will probably hike one more time with inflation expected to stay above its 2-3% target through 2025, while the Fed is seen cutting rates with the latest US data showing a rise in unemployment. 

Source : Bloomberg