Australia's central bank today stunned markets by raising its cash rate 25 basis points when traders had looked for an extended pause, saying inflation was way too high and warned that even further tightening may be needed to bring it to heel.

The unambiguously hawkish policy stance sent the Australian dollar soaring and bond futures tumbling as markets quickly lifted the peak for interest rates.

Wrapping up its May policy meeting, the Reserve Bank of Australia raised rates to 3.85% and said "some further tightening" may be required to ensure that inflation returns to target in a "reasonable timeframe".