Banks lift Australia shares after RBA hikes rates to 18-year high

By Nikita Maria Jino and Shravya Marakini

Nov 3 (Reuters) - Australian shares closed slightly higher on Tuesday, led by banks after a near-split central bank vote to raise interest rates fuelled expectations that the tightening cycle may be nearing its end.

The S&P/ASX 200 index .AXJO ended up 0.3% at 8,886.80. It fell as much as 0.2% earlier.

The Reserve Bank of Australia lifted interest rates by 25 basis points to 4.85%, the highest since December 2008, in a 6-3 vote.

Although the board said it would continue to do what it considers necessary to bring inflation to target, it removed a reference to increasing the cash rate further if needed.

The RBA's 125 bps of tightening this year has more than offset the 75 bps of policy easing in 2025, putting Australia at the hawkish end of developed-market central banks.

"We anticipate the Board will take a 'wait-and-see' approach in the near-term to assess the impact of recent hikes unless we see material inflation surprises in the upcoming print for October or an intensification in the Middle East conflict," said Cameron Curko, CIO of Pitcher Partners Sydney.

Financials .AXFJ closed up 0.4%, led by a 1.3% advance in top lender Commonwealth Bank of Australia CBA.AX. Higher-for-longer rates, while typically beneficial for banking profits, may strain borrowers' ability to service mortgages, as they weather price pressures from high fuel costs.

Consumer-facing discretionary .AXDJ and real estate .AXRE stocks added 1.9% and 2.9%, respectively.

Airline shares rose after oil prices fell 7% overnight. Flag carrier Qantas QAN.AX was among the top gainers on the benchmark index, up 6.4%. Rival Virgin Australia VGN.AX also rose 8.9%.

The decline, however, triggered a 3.5% loss in the energy sub-index .AXEJ. Woodside Energy WDS.AX and Santos STO.AX fell 3.5% and 1.8%, respectively.

Miners .AXMM slipped 0.3%, marking a fourth straight session of losses on weaker base metal price. Index heavyweight BHP BHP.AX lost 0.6%. IRONORE/ MET/L

Meanwhile, New Zealand's benchmark S&P/NZX 50 index .NZ50 edged up 0.2% to close at 13,720.26.