RBA hikes rates by 50bps to 2.35% and warns of further hikes as taming inflation is viewed as a prerequisite for a strong economy.
The Reserve Bank of Australia has signaled further rate hikes to come over coming months after raising the Official Cash Rate by 50bps to an near eight-year high of 2.35% and close to its estimated neutral rate. (See MNI STATE OF PLAY: RBA To Hike 50 As Inflation Stays Priority).
The bank nodded to its estimate of the nominal neutral rate of 2.5% by replacing its prior language regarding "the normalisation of monetary conditions" with sharper language foreshadowing a more restrictive stance by signaling its intention to "increase interest rates further over the months ahead".
The RBA reiterated it is "not on a pre-set path" as the battle to return inflation back to its 2-3% target range remains its top priority. The board added new language stating that it would be paying "close attention to the evolution of labour costs", reflecting resurgent wage pressures in the economy as unemployment hovers at a 48-year low, noting there were pockets where labour costs were increasing "briskly".
Second quarter GDP will be released on Wednesday, while RBA Governor Philip Lowe speaks on Thursday. Aussie bonds reversed their earlier gains in the wake of the RBA's decision, and trade flat on the day, with the 3Y last at 3.235% and the 10Y at 3.65%.