The Reserve Bank of Australia (RBA) startled investors on Tuesday as it raised interest rates by only a few points. Beforehand, traders had expected a spot-on 50 basis points as with other banks. Therefore, it came as a shock when the bank condescended to 25 basis points.
RBA Drops The Bar On Rates
Australian policymakers agreed to step-up key rates by 2.60 percent at October’s economic meeting. Rounding it off to basis points, it amounted to 25bps. Rate hike hit a nine-year range due to this level of increase.
Meanwhile, it was undersized compared to previous peaks. Australia has boosted rates like other Banks this year, touching 50bps four times. The more reason investors called for another 50 basis points for October.
Surprisingly, RBA only pushed rates up a nudge by 25 basis points. But it forwarded possibilities of higher points in the future.
Earlier, The bank had notified investors of a potential downshift in rate hikes. Despite that, economists still priced in half a percentage point for October. That is because the Fed maintained a hawkish pose at its end last month.
Philip Lowe, the current governor of the Reserve Bank of Australia, commented on rates decisions hitherto. He said that the RBA lifted rates significantly over a short span.. Now, it has decided to lax a bit this month.
According to him, twenty-five basis points seemed like a modest number after considering certain things. These items included evaluating Australia’s economic development and inflation pace. However, he noted that the bank might revert to pushing rates higher in posterity.
Australian Market Performance
Meanwhile, in the currency market, AUD fell 0.8 percent to $0.6465 against the USD. A level close to its two-and-a-half-year low of $0.6364. Traders reacted in line with central banks’ rates approach.
Conversely, the interest rates index surged following rates peaking below 4 percent, as initially anticipated. On the other hand, bond yields rallied lower. The three-year ticker plunged 42.5 pips to 96.750.
Su-Lin Ong, Head of RBC capital market, remarked on RBA’s move in an interview. According to him, dropping rates lower than expected tends to shift perspectives on potential hikes. Additionally, officials may be considering 0 and 25 points at the next meetings.
RBA’s rate points for October spawned a lot of uncertainties for economists. Lowe highlighted an improving global economic outlook as an uncertainty. Likewise Australians’ reaction to increased borrowing costs.
Jim Chandler said that pessimistic opinions regarding the global economy are prevalent. Jim is concluding his first annual budget, which he will release later in October. According to him, the budget contains constricted directives on spending.
Housing costs continue diving for five months straight. Melbourne and Sydney saw the highest drop rate in house prices.
The Consumer Price Index remains positive as it keeps showing strength. A responsible factor behind it is the strong labor market. The unemployment rate is almost at its lowest in five decades at 3.5 percent.
