Australian Rate Hike Smaller than Anticipated

October 4, 2022

Policymakers at the Reserve Bank of Australia helped reinforce markets’ reassessment of coming monetary restraint around the world by throttling back the incremental rise of the Official Cash Rate to 25 basis point from moves of 50 basis points at the previous four monthly reviews. The initial rate hike last May, like today’s had been an increase of 25 bps to 0.35% from a pandemic low of 0.10%. Markets had been anticipating another 50-basis point hike today instead. In response to the surprise, the Aussie dollar fell 0.6% overnight, and the government’s 10-year sovereign debt yield plunged 17 basis points. In explaining today’s smaller rate hike, Governor Lowe’s statement points out, “The cash rate has been increased substantially in a short period of time. Reflecting this, the Board decided to increase the cash rate by 25 basis points this month as it assesses the outlook for inflation and economic growth in Australia.” He indicates that more increases will be coming, but that reassurance did not balance investors’ surprise at the downsized incremental pace. The statement concedes that inflation will go higher in the very short time, continue to exceed 4.0% next year and not return to target before 2024.

Copyright 2022, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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