Reserve Bank Provides Hawkish Surprise, Raising Cash Rate Target By 50bp

The Reserve Bank of Australia surprised markets by raising its cash rate target by 50bp, an outcome expected by just three out of 29 economists in the Bloomberg survey, with consensus looking for a 25bp move and some expecting a 40bp hike. Market pricing was also leaning towards a 25bp rate rise.

• "Inflation in Australia has increased significantly. While inflation is lower than in most other advanced economies, it is higher than earlier expected [and] is expected to increase further, but then decline back towards the 2–3 per cent range next year."
• "One source of uncertainty about the economic outlook is how household spending evolves, given the increasing pressure on Australian households' budgets from higher inflation. Interest rates are also increasing. [...] While the central scenario is for strong household consumption growth this year, the Board will be paying close attention to these various influences on consumption as it assesses the appropriate setting of monetary policy."
• "Today's increase in interest rates by the Board is a further step in the withdrawal of the extraordinary monetary support that was put in place to help the Australian economy during the pandemic. The resilience of the economy and the higher inflation mean that this extraordinary support is no longer needed. Given the current inflation pressures in the economy, and the still very low level of interest rates, the Board decided to move by 50 basis points today. The Board expects to take further steps in the process of normalising monetary conditions in Australia over the months ahead."
• Click here to see the full statement.