A fresh warning on more pain to come from higher interest rates put a dampener on the Australian market, with stocks falling by as much as 2.5% during intraday trading.
In its quarterly statement on monetary policy released this morning, the Reserve Bank said the underlying inflation is forecast to be around 3.5% over the year to December quarter 2008.
"The forecast of a continuing high level of underlying inflation reflects the expectation that pressure on capacity will remain for some time," the RBA said.
"Indeed, in the near term, it is likely that the year-ended rates of underlying and headline inflation will rise somewhat from current levels reflecting the succession of large quarterly increases in three latest quarters."
The statement's cautious overall outlook transpired into gloomy investor sentiment, with investors selling off banking stocks.
The Commonwealth Bank of Australia fell $1.39 to $48.75, ANZ lost 80 cents to $24.80, Westpac lost 67 cents to $24.30 and National Australia Bank slid $1.43 to $32.
The negativity has affected most stocks across the board, with no mercy spared for those with positive result coming out of the reporting season.
Retailer David Jones fell 4% to $4, down a fifth straight session, despite posting an increase in its half-year profit guidance.
The market disregarded United Group's 45.7 per cent rise in interim earnings, as the stock finished 24% down at $10.89.
CCP group lost more than three quarters in value after posting a 50% fall in half-yearly earnings guidance as well as announcing the resignation of the chairman.
All the S&P ASX indices fell across the board.
Defying the trend was Resource Pacific, which rose 9.7% to $3.22 on the back of more takeover news.
Ansell was also amongst the few to rise, gaining 3.4% to $11.90.
