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The Australian dollar turned lower against the US dollar this morning after the RBA meeting minutes from the previous policy meeting showed that the central bank was likely to continue to hike rates in the foreseeable future.
Governor Lowe came out with the extremely hawkish statement that “the board considered a hike of 25-basis point or 50-basis points hike and a pause was “not an option”
Potentially the Aussie currency fell as the RBA minutes revealed that “arguments in favour of both options but the board agreed case for 25-basis points was stronger”. This meant that some people expecting 50-basis point could have their expectations lowered in terms of aggressive action.
This month the Reserve Bank of Australia raised the cash rate by 25bps to 3.35% at its February meeting, matching market forecasts. The move was the ninth rate hike since May last year, which brought borrowing costs to a level last seen in September 2012.
A total of 325-basis point increases also marked the sharpest annual tightening since 1989. While dropping the previous guidance of the unpreset path, the board reiterated further hikes would be needed as inflation in Australia remained too high.
The central bank seeks to return inflation to the 2–3% range and projects the reading to come in at 4-3/4% this year and around 3% by mid-2025. Policymakers mentioned they would keep the economy on an even keel since the way to achieve a soft landing is a narrow one.
Other notable statements from the RBA meeting this morning were “Pattern of upward surprises on inflation wages argued for 50 basis point move” and “Longer inflation stayed high, the greater the risk of price-wage spiral”.
On the RBA decision making process, the meetings revealed that the “Board agreed further rate increases would likely be needed over the months ahead” and the “Board noted inflation forecasts based on the technical assumption of 3.75% cash rate”.
The minutes also showed that Data suggested more breadth and persistence in inflation than expected and Australia to benefit more from China reopening than a number of other countries.
