RBA raises cash rate 50bp to 0.85, above market wagers
Says more hikes will be needed to control rising inflation
Markets price in more 50bp moves, yields hit decade highs

SYDNEY, June 7 Reuters Australia39;s central bank on Tuesday raised interest rates by the most in 22 years and flagged more tightening to come as it battles to restrain surging inflation, stunning markets and sending bond yields flying.

Wrapping up its June policy meeting, the Reserve Bank of Australia RBA lifted its cash rate by 50 basis points to 0.85, wrong footing investors who had wagered on a move of either 25 or 40 basis points.

Given the current inflation pressures in the economy, and the still very low level of interest rates, the Board decided to move by 50 basis points today, said RBA Governor Philip Lowe in a statement.

The Board expects to take further steps in the process of normalising monetary conditions over the months ahead.

The central bank had already lifted rates by a quarter point in May, the first increase since 2010, and many had thought it would stick to quarterpoint moves. The last time it hiked by more was in early 2000.

Investors initially sent the local dollar up half a cent to as far as 0.7248 , where it ran into profittaking. Bonds took a beating as threeyear yields shot up 16 basis points to 3.27, levels not seen since early 2012.

Futures shifted to price in the real risk of another 50 basis point rise in July and rates around 1.5 by August following the…