RBA shocks markets with rate rise

Australia's central bank surprised markets on Tuesday when its lifted its key interest rate again and warned of more hikes to come as it battled to combat persistent inflation.

The Reserve Bank of Australia raised its cash rate 25 basis points to 3.85% at its monthly meeting, against expectations of a second consecutive pause.

RAB governor Philip Lowe said inflation in Australia had "passed its peak, but at 7% is still too high and it will be some time yet before it is back in the target range".

"Given the importance of returning inflation to target within a reasonable timeframe, the board judged that a further increase in interest rates was warranted today."

"Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve."

Lowe said the bank would continue to pay close attention to developments in the global economy, trends in household spending and the outlook for inflation and the labour market.

Reporting by Frank Prenesti for Sharecast.com