Reserve Bank of Australia delivers larger than expected rate hike
By Alexander Bueso
Date: Tuesday 07 Jun 2022
(Sharecast News) - Rate-setters in Australia surprised many participants in financial markets with a larger-than-expected interest rate hike in response to a "significant" rise in inflation.
Indeed, Reserve Bank of Australia Governor, Philip Lowe, said that in the near-term inflation was now seen rising by more than had been expected just one month before.
Lowe blamed higher prices for electricity and gas, as well as petrol, as the factors driving the additional near-term acceleration in prices that was now expected.
The cash rate was raised by 50 basis points to 85bp (Barclays Research: 60bp).
In response, as of 0927 GMT, the Aussie was drifting lower by 0.13% to 0.7184 against the US dollar.
Much of the excess inflation however was the result of Covid-19 related supply-chain disruptions and the war in Ukraine, he said.
Nevertheless, a decline in headline inflation back towards 2.0-3.0% was expected in 2023.
RBA also kept its options open regarding the future path of short-term official interest rates, signalling that further hikes were likely "over the months ahead", although incoming data would determine the size and timing of any move.
Capacity constraints in some sectors of the Australian economy and the tight jobs market were also factors behind higher prices.
During the first three months of 2022, Australia's gross domestic product grew at a year-on-year pace of 3.3% and was up by 0.8% on the quarter, while unemployment was at a 50-year low of 3.9%.
Lowe also emphasised the importance of household spending and its behaviour going forward as another source of uncertainty.
House prices had fallen in some markets but remained a quarter above their pre-pandemic level and savings were also above their pre-Covid-19 level, while further declines in unemployment and underemployment were forecast.
"There are also ongoing uncertainties related to COVID, especially in China."
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