The Reserve Bank increased its cash rate to 3.85%, the highest level since April 2012 in a decision predicted by only nine of 30 economists surveyed. The other 21 as well as money markets had expected a second unchanged decision following April’s pause. The RBA has hiked 11 times since May last year.

“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve,” RBA Governor Philip Lowe said in his post-meeting statement.

The Aussie dollar jumped to 66.78 US cents after the decision while three-year bond yields rose to 3.17%.

Even after Tuesday’s surprise move, Australia has lagged its global counterparts in its policy response to higher prices, having raised rates by 3.75 percentage points, compared with 5 in New Zealand and 4.75 in the US.

Both the Federal Reserve and the European Central Bank pushed ahead with hikes in the face of banking turmoil and financial market volatility and are expected to raise rates again at meetings this week.

Lowe has acknowledged the path to cooling inflation while preserving employment gains is a “narrow” one. His determination to do so is part of the reason why economists expect Australia will avoid a recession.

Working in Lowe’s favour is a housing market that’s beginning to stabilise, improving household sentiment. While job growth has cooled in recent months, it remains solid and unemployment is hovering around a 50-year low. Consumer spending has also held up in the face of higher borrowing costs.

The governor will give a speech in Perth at 9.20pm Sydney time that’s likely to further explain the board’s thinking. The RBA will release its full suite of updated forecasts in its quarterly Statement on Monetary Policy on Friday.