RBA raises cash rate 25 bps to 0.35 vs market forecast 0.25
Says further hikes will be needed to curb inflation
Market narrows odds on rise to 0.75 in June
RBA says pace not predetermined, could eventually get to 2.5

SYDNEY, May 3 Reuters Australia39;s central bank on Tuesday raised its cash rate by a surprisingly large 25 basis points to 0.35, the first hike in over a decade, and flagged more to come as it pulls down the curtain on massive pandemic stimulus.

The news was a blow to Prime Minister Scott Morrison as he fights a tough election campaign that, going by opinion polls, could see him turfed out of office on May 21.

Wrapping up its May policy meeting, the Reserve Bank of Australia RBA said it was the right time to begin withdrawing extraordinary monetary support as inflation had picked up significantly and the economy was near full employment.

The Board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time, said RBA Governor Philip Lowe. I expect that further increases in interest rates will be necessary over the months ahead.

The size of the move helped lift the local dollar up 1 to 0.7115 as a majority of analysts in a Reuters poll had expected a rise to only 0.25.

The policy sea change came after consumer price inflation spiked to a 20year peak of 5.1 in the first quarter, led by costs for petrol, housing, food and education.

Core inflation jumped to 3.7 and above the RBA39;s target band for the…