SYDNEY — The Reserve Bank of Australia increased its cash rate by 25 basis points to 5.25 percent, marking an 18-year peak for the benchmark rate.
The four-to-three board split immediately shifted market expectations. Australian two-year yields fell 7 basis points, pricing a reduced probability of additional hikes. The Australian dollar dropped 0.6 percent against the U.S. dollar.
RBA Governor Michele Bullock said the board weighed a pause against the 25-basis-point increase. Persistent services inflation and robust wage growth drove the decision to hike, she said. Annual inflation remains above the RBA's two to three percent target band.
The yield curve flattened as investors repriced for a policy pause. The two-year/ten-year spread compressed 4 basis points, signaling market consensus that the hiking cycle is nearing its end. Fixed-income investors are recalibrating duration exposure in Australian assets, anticipating a rate plateau.
