RBA raised the rates by 25 basis points
For the second meeting in a row, the Reserve Bank of Australia continued its slower pace of tightening policies. On October 4, while market participants were waiting for a 50-bps rate hike to 2.85%, the policymakers decided to act a bit softer with only a 25-bps rate hike to 2.60% and today, on Tuesday, November 1, with another 0.25% raise, RBA increased the target cash rate to 2.85%. This is while it hiked its inflation expectation for 2022 to 8% and decreased its GDP outlook to grow 3%, down from a previous forecast of 3.25%, as it sees more headwinds for the economy from inflation and rising rates. Also, the central bank vowed to keep raising interest rates as needed, and it will continue adopting a data-driven approach.
As a reaction, Aussie reacted negatively to that by losing its value against most of its rivals. AUDUSD raised about 0.8% after the news. Later it had some correction and is currently at 0.6446 indicating about a 0.3% intraday gain. With a weak economic outlook, inflation expectation that RBA has, and concerns over steadily rising inflation in the country, we can expect more pressures on both currency and stock markets.
On the other hand, other factors play an important role. The labor market and consumer income and spending remained strong, which means we can still expect more hawkish policies from Reserve Bank. Also, we should not forget about other major central banks` policies, RBA also has to keep up pace with them, especially with US Federal Reserve.
