RBA Accelerates Rate Cycle as it Raises Rates by 50bps to 0.85%

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    The Reserve Bank of Australia raised interest rates for the second consecutive time on Tuesday to 0.85%. The move was higher than expected, the RBA bo
    [See the full post at: RBA Accelerates Rate Cycle as it Raises Rates by 50bps to 0.85%]


    ASX drops, $A jump on jumbo RBA rate rise

    The Australian sharemarket has fallen deeper and the local currency jumped after the Reserve Bank raised interest rates by 50 basis points to 0.85 per cent.

    The S&P/ASX 200 is down 1.7 per cent at 7085.3 following the move, after being down around 1 per cent prior to the announcement.

    The Australian dollar jumped nearly half a US cent to US72.33¢. The yield on the three-year Australian bond soared 19 basis points to 3.16 per cent.


    After Jumbo RBA move Goldman Sachs now sees hike by 50 bps in July & ultimately reach a terminal rate of 2.60% by December.
    Adds risks skewed towards a faster pace of tightening, including a likelihood of another 50-bps rate hike in August.


    CBA expect the RBA to hike by another 50 bps in July.

    ANZ sees RBA hiking by 25 bps in July and then following that up with a 50 bps rate hike in August, which is a bit of a surprising take all things considered.

    NAB expect the RBA to deliver rate hikes between 75 bps to 100 bps in the coming two months i.e. July and August. They see the cash rate reaching 1.60% to 1.85% and expect it to return to 2.00% by December (previous forecast was for 1.35% by year-end). NAB adds that they see the terminal rate for the RBA being around 2.00% to 2.50%, with the market pricing now of over 3.00% being rather “excessive”. They will publish a formal profile to the RBA decision tomorrow.


    Ex-Reserve Bank of Australia governor, Ian Macfarlane:

    Says he would be surprised if the CPI fell back to 2%
    Says there is enough scarcity in Australia and in the US to keep the rate of inflation high
    Thus he expects interest rates to rise sharply in order to fight inflation, the 50bp hike yesterday was the correct decision


    CBA on RBA Moves:

    Strength in home-buying, health & fitness and transport
    Falls in entertainment, travel and insurance

    “The RBA interest rate hiking cycle has started and is now expected to be more aggressive than earlier anticipated,”
    “We have already seen early indicators of softness in CBA credit & debit card spending data. We have revised higher our terminal cash rate forecast to 2.1% and downgraded our economic growth outlook and dwelling price forecasts.”


    Reserve Bank of Australia Governor Lowe said higher interest rates are needed in order to bring down inflation, which could be 7.0% by Christmas.

    Goldman Sachs expects #RBA to raise its cash rate by 50 bps in August and September.


    Reserve Bank of Australia’s latest policy minutes showed that the central bank is considering a 25- or a 50-bps rate hike in July and an agreement that inflation will not return to target if current policy is maintained.


    UBS on RBA:

    UBS forecast Reserve Bank of Australia 50bp rate hikes July 5 & August 2
    Projecting cash rate at 2.6% by November.

    our view … has been bullish/above consensus on the consumer in the near-term, but expecting a sharper weakening next year
    rate hikes will only impact household cash flow materially over coming quarters, due to a longer lag than normal reflecting a greater share of fixed home loans and larger mortgage buffers
    savings rates remain very high, and are still normalising, providing a powerful tailwind to consumption in coming months

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