This morning the Australian dollar fell against the US dollar as the Australian central bank continued to cut interest rates, however, there was a key change in policy language today.
The Reserve Bank of Australia raised the cash rate by 25bps to 3.6% at its March meeting, matching market consensus. Tuesday’s move was the 10th rate hike since May 2022, which brought borrowing costs to their highest level since May 2012.
According to the cycle of hikes, this now makes a total of 350 basis points of rate hikes also marking the sharpest annual tightening since 1989. The RBA said the monthly CPI indicator suggested that inflation had peaked, and signalled future tightening will depend on incoming economic data.
As mentioned, the key point from the Statement is that Lowe dialled down the hawkishness from the February statement. The previous forward guidance indicated more than one hike ahead.
Last month the statement said, “The Board expects that further increases in interest rates will be needed over the months ahead”, however, a key change happened.
The central bank today replaced it with: “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.”
According to the Australian central bank’s policy statement also said “In assessing when and how much further interest rates need to increase, the Board will be paying close attention to developments” sounding very much like Fed officials as they remain data dependent.
The board seeks to return inflation to the 2-3% range while projecting the inflation reading to come in at 4-3/4% this year and around 3% by mid-2025. The committee added it would keep the economy on an even keel but the path to achieving a soft landing remains a narrow one.
The committee forecast Australia’s GDP growth in the next couple of years to be below trend, on a slowdown in household consumption and softening housing construction. The RBA also raised the interest rate on Exchange Settlement balances by 25bps to 3.5%.