The Reserve Bank of Australia today increased its main policy rate, the cash rate, by 25 basis points to 3.85 percent, contrary to the consensus forecast for no change. Officials left rates on hold at their most recent meeting in early April after they had raised policy rates by a cumulative 350 basis points in previous months, but they indicated then that further policy tightening could be considered. Monthly inflation data published since the last meeting showed a fall in headline inflation but a small increase in underlying inflation in March, and a rate hike today was seen as a possibility.

In the statement accompanying today's decision, officials noted the"welcome decline" in headline inflation but reaffirmed their assessment that it remains too high. Quarterly headline CPI inflation fell from 7.8 percent in the three months to December to 7.0 percent in the three months to March, still well above the RBA's target range of 2.0 percent to 3.0 percent. Officials expect that headline inflation will not return to the top of this target range until mid-2025.

Officials noted several factors contributing to ongoing strength in price pressures, including continued tight labour market conditions, high service price inflation, and subdued productivity growth. They stressed the importance of ensuring that medium-term inflation expectations"remain well anchored" and promised to be alert for signs of a price-wage spiral.

Officials again acknowledged that the policy tightening they are implementing has risks for the growth outlook, noting that"the path to achieving a soft landing remains a narrow one". They continue to expect the economy to grow at a below-trend pace and highlighted uncertainties to the outlook for both the global economy and household spending.

Although officials kept rates on hold last month, they concluded that"the importance of returning inflation to target within a reasonable timeframe" warranted further policy tightening today. They also reiterated that they"will do what is necessary to achieve that" and advised that further rate hikes may be required in coming months, depending on incoming data.

The Reserve Bank of Australia left rates unchanged at its last meeting, ending a long run of rate hikes. The bank is expected to keep rates unchanged at its May meeting though there are outside expectations for a 25-basis-point hike.

The Reserve bank of Australia (RBA) announces its monetary policy with regard to interest rates on the first Tuesday of each month with the exception of January when it is on vacation. The RBA is the central bank of Australia and its duty is to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people. It does this by setting the cash rate to meet an agreed medium-term inflation target, working to maintain a strong financial system and efficient payments system.

The Reserve Bank of Australia's (RBA's) main responsibility is monetary policy. Policy decisions are made by the Reserve Bank Board with the objective of achieving low and stable inflation over the medium term. Other responsibilities include maintaining financial system stability, while at the same time promoting the safety and efficiency of the payments system. The RBA regards appropriate monetary policy as a major factor contributing to the Australian dollar's stability, which in turn leads to full employment and the economic prosperity for Australia.

The RBA is unique among the central banks - it has two boards with complementary responsibilities. The Reserve Bank Board is responsible for monetary policy and overall financial system stability. The Payments System Board has specific responsibility for the safety and efficiency of the payments system.

The RBA sets an interest rate at which it lends to financial institutions. This interest rate then affects the whole range of interest rates set by commercial banks and other institutions for their own savers and borrowers. It also tends to affect the price of financial assets, such as bonds and shares, and the exchange rate, which affect consumer and business demand in a variety of ways. Lowering or raising interest rates affects spending in the economy.

The level of interest rates affects the economy. Higher interest rates tend to slow economic activity; lower interest rates stimulate economic activity. Either way, interest rates influence the sales environment. In the consumer sector, few homes or cars will be purchased when interest rates rise. Furthermore, interest rate costs are a significant factor for many businesses, particularly for companies with high debt loads or who have to finance high inventory levels. This interest cost has a direct impact on corporate profits. The bottom line is that higher interest rates are bearish for the financial markets, while lower interest rates are bullish.