MNI BRIEF: RBA Backs Reasonable Timeframe With 25bp Hike

The Reserve Bank of Australia beat market expectations lifting the cash rate target 25 basis points to 3.85 per cent, placing importance on returning inflation to its 2-3% target within a "reasonable timeframe".

The RBA also adjusted its phrasing on future raises, shifting from April’s further tightening “may well be needed” to “may be required”. The Reserve noted, while inflation had passed its peak, the latest print at 7% was still too high (see: MNI BRIEF: Softer CPI Gives RBA Space For Additional Pause).

"While the recent data showed a welcome decline in inflation, the central forecast remains that it takes a couple of years before inflation returns to the top of the target range; inflation is expected to be 4.5% in 2023 and 3% in mid-2025," Governor Philip Lowe said in statement.

AUD/USD surged following the announcement, while the two-year bond yield spiked above 3.25% (+18bps) before edging lower (see: A$ Surges, Yields Spike On Surprise RBA +25bps Rate Rise). Markets swiftly repriced Australian interest rates, with the overnight index swap rate pointing to a 3.95% peak by September.