RBA raises cash rate by 50 bps to 0.85%

  • Also increased the interest rate on Exchange Settlement balances by 50 bps to 0.75%
  • Inflation in Australia has increased significantly
  • Inflation is expected to increase further, but then decline back towards the 2% to 3% range next year
  • Australian economy is resilient; household and business balance sheets are generally in good shape
  • One source of uncertainty about the economic outlook is how household spending evolves
  • Rate hike is a further step in the withdrawal of the extraordinary monetary support during the pandemic
  • The resilience of the economy and the higher inflation mean that this extraordinary support is no longer needed
  • RBA expects to take further steps in the process of normalising monetary conditions in Australia over the months ahead
  • The size and timing of future interest rate increases will be guided by the incoming data and assessment of the outlook for  inflation  and the labour market
  • Full statement

The RBA is certainly liking the idea of not playing it straight now, do they? The expectation coming into the decision was either for a 25 bps move or a 40 bps move, but here they are delivering a 50 bps move instead.

RBA cash rate futures showed a pricing of just over 25 bps (0.56%) so the aussie is gaining strongly on the back of the decision. AUD/USD is up 0.6% to 0.7245 as the RBA doesn’t disappoint the hawks.

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