Australia’s RBA sees no need to hike rates but wary of price risks

SYDNEY, May 7 (Reuters) – Australia’s central bank chief said on Tuesday interest rates were at the right level after holding steady for a sixth month, but cautioned that inflation risks were on the upside in a sign policy was unlikely to be eased anytime soon.

Wrapping up its two-day May policy meeting, the Reserve Bank of Australia (RBA) kept rates at a 12-year high of 4.35%.

However, it stopped short of reinstating a tightening bias that some economists had tipped after first quarter inflation and the labour market failed to cool as much as expected.

In unusually forthcoming remarks, RBA Governor Michele Bullock said she hoped the economy would not have to “stomach” higher interest rates, but the board was prepared to act if service sector inflation stayed stubbornly high.

The dovish comments jarred financial markets, which had been wagering on a real chance of another hike in rates following a disappointingly high inflation reading in the first quarter.

The Australian dollar fell 0.5% to $0.6587, while three-year bond futures rallied 8 ticks to 96.06. Markets slashed bets of another hike this year to imply a probability of just 13% for September, compared to 43% early in the day.

Source: REUTER