The bank lifted its cash rate a quarter point to 3.85%,
bringing the total tightening in the past year to 375 basis
points.
Inflation is only projected to return to the top of the
RBA's 2-3% target range by mid-2025, based on the bank's latest
forecasts on Tuesday. Headline inflation stood at 7.0% in the
first quarter, having eased from a 7.9% peak.
"There is a limit here. If we take too long to get inflation
back to target, expectations will adjust and life will become
more difficult," Lowe warned.
He said the flow of data supporting the latest rate hike
included a tight labour market, upside risks in services price
inflation and recent changes in exchange rates and house prices.
Markets, as well as a majority of analysts, had been
wagering heavily on rates being left unchanged after the RBA
paused its tightening at last month's meeting, saying that it
wanted time to assess the impact of the tightening undertaken
so far.
A slower return to the inflation target had been something that the RBA was willing to tolerate in order to preserve strong job gains, putting it at odds with hawkish central banks like the Federal Reserve and European Central Bank.
Yet the dovish bias had seen the Aussie dollar slip close to the lowest level this year, and sparked a sudden turnaround in the housing market where prices were now rising after months of losses. Lowe also noted how stubborn services inflation was proving to be overseas, which could suggest an upside risk in Australia given recent data showed services inflation accelerated to the highest since 2001.
"Looking forward, some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe," Lowe concluded.
Markets are now pricing around a 50% chance of a further hike to 4.10% by August.
(Reporting by Stella Qiu; Editing by Simon Cameron-Moore)
