RBA to hike in 25 to 50 basis point steps, Lowe says

AUSTRALIA'S central bank chief said rate increases will be conducted in quarter or half point increments, according to Reserve Bank of Australia (RBA) governor Philip Lowe.

"We're on a narrow path back to lower inflation," Lowe said during a panel discussion in Zurich on Friday (Jun 24). "We can navigate that path, but there are risks - and the risks come both from the global economy and the uncertainty around households and how they are going to respond to higher interest rates."

Australia has swung from being an outlier in keeping rates low to now rapidly hiking as it tries to rein in escalating inflation. The central bank is expected to back up its half-point increase this month with another in July, having begun its tightening cycle in May.

Lowe maintains that Australia - which he described to a panel at UBS in Zurich as "remarkably resilient" - is likely to avoid recession from rapid rate increases, citing strong underlying momentum in the local economy from cashed-up households and a strong business investment outlook.

Australians built up an estimated A$200 billion (S$192 billion) in additional savings during the pandemic. That's expected to support consumption even as inflation outstrips pay gains, resulting in falling real wages.

The nation is also aided by unemployment at a 48-year low of 3.9 per cent with strong job vacancies suggesting it will push even lower, providing another cushion for the economy.

Australia's key interest rate currently stands at 0.85 per cent. BLOOMBERG