SYDNEY (Reuters) -- Australia's central bank on Tuesday raised the interest rate by 25 basis points for a second straight month while revising up its inflation outlook, saying that more tightening will be needed ahead.
Wrapping up its November policy meeting, the Reserve Bank of Australia (RBA) lifted its cash rate to a nine-year peak of 2.85%, the seventh hike in as many months.
It had surprised many in the markets last month by downshifting to a quarter-point rate hike, following four consecutive moves of 50 basis points, citing an already substantial rise in rates.
"The Board expects to increase interest rates further over the period ahead. It is closely monitoring the global economy, household spending and wage- and price-sbehaviorhaviour," RBA Gov. Philip Lowe said in a statement.
"The Board recognises that monetary policy operates with a lag and that the full effect of the increase in interest rates is yet to be felt in mortgage payments."
Inflation is now expected to peak around 8% later this year, up from a previous forecast of 7.75%, according to the RBA.
The local dollar edged 30 ticks lower after the rate decision, while markets have reduced the expected peak for cash rates to around 3.9%.
Rates have already risen by 275 basis points since May and the RBA had wanted to slow down and see how the drastic tightening was affecting consumer spending, against a backdrop of heightened global uncertainty.
However, consumer spending has remained strong, the job market stayed tight and Australian inflation raced to a 32-year high last quarter, a shock result that stoked pressure for a return to more aggressive rate hikes by the RBA.
A closely watched measure of core inflation released last week, the trimmed mean, rose 6.1% from a year ago, already topping a forecast by the RBA that it would peak at 6.0% in the fourth quarter. The bank is set to update its latest economic forecasts on Friday.
An ANZ survey of consumers on Tuesday showed confidence declined for a fifth straight week last week, while inflation expectations surged to the highest in more than a decade.
"Cost of living concerns, along with expectations of more rate hikes by the RBA, have caused confidence to decline to levels last seen during the early weeks of the COVID lockdowns," said David Plank, head of Australian Economics at ANZ.