Australia’s central bank holds rates steady but retains hiking bias By Reuters

SYDNEY (Reuters) – Australia’s central bank held interest rates steady on Tuesday as expected, buying it more time to assess the state of the economy and to determine whether further hikes might be needed next year.

Wrapping up its December policy meeting, the Reserve Bank of Australia (RBA) kept rates at a 12-year high of 4.35%, adding economic data received since November had been broadly in line with expectations.

Markets had wagered heavily on a steady outcome given inflation had eased a little more than expected in October, although a hike in the new year is still in play.

The local dollar extended earlier declines to be down 0.5% to $0.6581 and three-year Australian government bond yields eased 5 basis points to 3.995%.

Investors slightly pared back the chance of a further rise to 4.6% in the new year to 38% by March from 43% before the no change decision.

“Holding the cash rate steady at this meeting will allow time to assess the impact of the increases in interest rates on demand, inflation and the labour market,” RBA Governor Michele Bullock said.

“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.”

Bullock, since assuming the top job in September, burnished her inflation-fighting credentials by raising the interest rates by another quarter point last month after four steady outcomes, out of concerns that inflation expectations risked getting unanchored.

She has since warned that inflation has become increasingly driven by domestic demand, requiring a more “substantial” response from interest rates.

It was its last chance to raise rates before February and provided Christmas relief to mortgage holders, many of whose monthly payments have jumped by more than A$1,000 ($662) a month amid elevated costs of living.

(A$1 = $0.6617)