SYDNEY: Australian shares finished 0.6% lower on Friday, with banking stocks weighing the most on the benchmark, after the country’s central bank warned of upside risks to inflation and the US Federal Reserve Chair’s hawkish remarks.

The S&P/ASX 200 index fell 0.6% to 6,976.500 points. The benchmark closed 0.3% higher on Thursday.

In its quarterly statement on monetary policy, the Reserve Bank of Australia (RBA) said there was “potential for further upside surprises to inflation,” pointing to domestic cost pressures and external factors such as global warming.

Additionally, Federal Chair Jerome Powell overnight said Fed officials “are not confident” that interest rates were yet high enough to finish the battle with inflation, adding to investor worries.

“Both the Fed and the RBA have successfully poured cold water on the surging notion of a peaked rate to highlight the undesired reality: the interest rate guessing game is far from being over,” said Hebe Chen, a market analyst at IG Markets.

“It appears that the central bank’s tightening journey has entered a new stage, characterised by more uncertainty and unpredictability.” In Sydney, rate-sensitive financials led losses on the local bourse, falling 1%. The ‘big four’ banks lost between 0.8% and 1.8%.

National Australia Bank was the top drag on the benchmark, falling 1.8% to a 10-day low after its annual cash profit missed analyst estimates.

Energy stocks ended 1.5% lower, logging their lowest close since May 5, as oil prices struggled on supply disruption worries stemming from the Israel-Hamas conflict.