Australian central bank leaves benchmark cash rate at 4.1%, warns of hikes

Australia's central bank left its benchmark interest rate at 4.1% at a policy meeting Tuesday after inflation fell to 5.6% in May from 6.5% a month earlier.

The Reserve Bank has lifted the cash rate 12 times since May last year to reduce inflation to a target range of 2% to 3%.

Higher interest rates raise the cost of borrowing for both businesses and consumers, slowing economic activity and helping to relieve price pressures that have flared after the slowdowns of the Covid-19 pandemic.

Bank governor Philip Lowe said there might need to be further rises.

Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable time-frame, but that will depend upon how the economy and inflation evolve, Lowe said in a statement.

The decision to hold interest rates steady this month provides the board with more time to assess the state of the economy and the economic outlook and associated risks, Lowe added.

In a report, Oxford Economics said it expects the cash rate to eventually peak at 4.6%.

While inflation has peaked, it remains uncomfortably high, it said.

Globally, inflation pressures have abated somewhat, allowing the U.S. Federal Reserve and other central banks to also slow or halt rate increases.