The Reserve Bank of Australia raised its cash rate by 25 bp today, taking the rate to 3.6% in an ‘as expected’ decision. Most of the interest though
The
Reserve Bank of Australia raised its cash rate by 25 bp today, taking
the rate to 3.6% in an ‘as expected’ decision. Most of the
interest though fell on the Statement accompanying the decision. In
it Reserve Bank of Australia Governor Lowe softened the language he
used, shifting to less hawkish than in the February Statement.
Specifically this (from February):
- “The
Board expects that further increases in interest rates will be needed
over the months ahead”
morphed
into this:
- “The
Board expects that further tightening of monetary policy will be
needed to ensure that inflation returns to target and that this
period of high inflation is only temporary. - In
assessing when and how much further interest rates need to increase,
the Board will be paying close attention to developments”
In
doing so the RBA is now flagging that they expect at least one more
hike and after that to be data-dependent. A very pertinent detail in
the Statement for the shift is this:
- “recent
data suggest a lower risk of a cycle in which prices and wages chase
one another”
Lowe
did add a caveat, which is reasonable:
- “The
Board, however, remains alert to the risk of a prices-wages spiral,
given the limited spare capacity in the economy and the historically
low rate of unemployment. Accordingly, it will continue to pay close
attention to both the evolution of labour costs and the price-setting
behaviour of firms.”
AUD/USD
had popped a little higher in the hours leading up to the RBA
announcement, but the USD was a touch weaker pretty much across the
majors board at the time so this pop was non-AUD specific. After the announcement
though AUD/USD was marked down. As I post its bouncing back just a
little.
On
the data agenda today we had Japanese wages data for January. The
abysmal headline from this was that real wages (that is, wages after
inflation) posted their biggest fall since May 2014. The Bank of
Japan is encouraging higher wages to support inflation. There wasn’t
much joy for them in this data. USD/JPY got a bit of a lift
on an ebbing of the prospect of any shift for BOJ policy (at the
margin). It was small and short-lived though, as I post USD/JPY is net
very little changed on the session.
Asian
equity markets:
-
Japan’s
Nikkei 225 +0.36% -
China’s
Shanghai Composite +0.16% -
Hong
Kong’s Hang Seng +0.93% -
South
Korea’s KOSPI +0.37% -
Australia ASX 200 +0.5%
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