“Reserve Bank of Australia Raises Interest Rates, Hinting at Further Monetary Tightening”

May 02, 2023 at 22:33 PM

RBA Governor Philip Lowe

[Global Market Report]The Reserve Bank of Australia hinted at the possibility of further tightening of monetary policy in the future after unexpectedly raising interest rates by 25 basis points on Tuesday. Australian government bond yields rose sharply with the Australian dollar.
The Reserve Bank of Australia raised its benchmark interest rate to 3.85%, the highest level since April 2012. Only nine of 30 economists surveyed forecast a rate hike, with the remaining 21 respondents and money market pricing all predicting the central bank will keep rates on hold for a second straight time. The RBA has raised rates 11 times since last May.
RBA Governor Philip Lowe said in a policy statement that further tightening of monetary policy may be needed to ensure inflation returns to target within a reasonable period of time, although this will depend on how the economy and inflation develop.
The Australian dollar rose more than 1% against the U.S. dollar after the RBA’s announcement. Australian 3-year bond yields surged 22 basis points. Australian shares fell 1.1%. Money markets are now pricing in a rise in the benchmark rate above 4 percent by October.
Even after Tuesday’s surprise rate hike, the RBA’s anti-inflationary policy response lagged other central banks. The Reserve Bank of Australia has raised interest rates by 3.75 percentage points, which is lower than the 5 percentage points of the Reserve Bank of New Zealand and the 4.75 percentage points of the Federal Reserve.