Australian Market - Investor Desk

Governor Philip Lowe announced a second major hike in five weeks as the RBA continues to pull the country away from the suspension of emergency lending that has nurtured the economy during the pandemic on Tuesday.

The RBA was widely expected to announce its first consecutive rise in 12 years to ease inflationary pressures pushing up food, fuel and electricity costs.

The only question left was how hard the Governor Dr Lowe and his board were ready, and economists’ expectations fluctuated primarily between 25 or 40 basis point rises.

Some had expected a 50 basis point increase, but the largest single interest rate increase since 2000 was still a surprise.

The Australian stock market fell 1.7% in the news, but the Australian dollar temporarily soared to US $ 72.20.

In his monthly statement, Dr. Lowe acknowledged inflation concerns as a factor behind the rate hike, but also cited a strong Australian economy, a strong labor market and a recovery in business investment as positive reasons.

“Resilience of the economy and higher inflation mean that this special support is no longer needed.”

He acknowledged that rising electricity and gas prices and recent rising gasoline prices mean that inflation could be higher in the short term than expected a month ago.

“But today’s rise in interest rates will help inflation return to its target over time.” He said it shows that he is planning with a focus on returning to the goal. The extent and content of the employment market recovery to maintain higher interest rates.

“They have identified slower growth in household consumption due to faster inflation and higher interest rates as the main risk of the outlook.

Faster rate hikes contribute to this downside risk,” Langcake said.

The RBA Board is in a delicate balance and needs to act fast enough to curb inflation without choking the economy.

Last month, during the federal campaign, it rose from 0.1% to 0.35% and implemented its first-rate hike in more than 11 years. The shift was stronger than expected and Martin Place stepped on the gas again.

The move on Tuesday will continue what is expected to be a long cycle of rate hikes in the coming months, pushing up consumer prices while also pushing up mortgage costs.

Many also expect borrowers to pass on some of this stress to their tenants.

“The monthly repayment increase this month is relatively modest, but homeowners need to prepare for a significant increase in the coming months,” said Sally, Research Director at RateCity.com.au.

Tindal says. “These rate hikes will not magically cure Australia’s inflation problem.

The RBA will probably need to rise again next month, from which the RBA will continue to be tight and tight to curb inflation. It could rise sharply.

Improvements in living expenses have been at the heart of Australia’s political situation for months, and Finance Secretary Jim Chalmers warned on Tuesday that the situation was “deteriorating before it got better.” did.

“It doesn’t make sense to chop up words about it,” Chalmers said.

“Our work as a government will be replaced by responsible long-term and sustainable living expenses relief in areas such as health care and childcare after some of this short-term living expenses have expired. Dr. Rowe says that the cause of uncertainty about the economic outlook is household spending and how it is maintained.

The decline in recent months has been declining, but remains more than 25% higher than pre-pandemic levels, supporting household wealth and spending. Dr. Lowe.

“The central scenario is strong household growth, but for this year’s old consumption, the Board pays close attention to these various implications for consumption when assessing the direction of appropriate monetary policy.

Uncertainty continues with Covid 19 as well, especially in China.

(Source: https://www.news.com.au/)

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