On Tuesday or in 7 of June, the Reserve Bank of Australia raised their interest rate by 50 basis points to 0.85%. The policy exceeded expectations while also being the RBA's biggest rate hike in two decades.
Previously, the market bet that Australian central bank would only raise interest rates in the range of 25-40 basis points. However, the RBA is struggling with the spike in inflation.
For your information, this inflation already occurring in recent months. The high inflationary pressures are beginning to wash away at the economy and interest rates which are already very low.
That is why; the RBA policymakers yesterday afternoon decided to raise their rates by as much as 50 basis points. The council expects to take further action over the next few months in the process of normalizing Australia's monetary policy.
Several Major Costs in Australia are Increasing
For information, Australian consumer inflation reached a 20-year high of 5.1%. It is especially in the first quarter, and approached 6.0% in the second quarter.
Electricity and gas costs are rising rapidly which is followed by the recent rise in oil prices. This means that in the near future inflation will increase again higher than last month.
This opinion was shared by Philip Lowe in his official statement. Some economists argue that the RBA's fairly aggressive rate hike was done solely to tame a spike in situation in the market.
It was happened before the winter of this year. After announcing the hike last month and at this meeting, one of the central bank's top brass even said that this thing still need to be increased to close to 3% by the end of 2022.
AUD / USD is Underpressured Again
However, some analysts still doubt the prospects for the interest rate. The reason is that there are mortgage loans worth by AUD2 trillion which makes the housing market very sensitive to rising it.
Before, THE AUD / USD was flying high. However, now it is slumped again. The RBA's surprise announcement and supported by very hawkish statements immediately made the market react to extremes.
The Australian dollar briefly jumped up to 1% to 0.7247. However, then that currency fell dramatically shortly thereafter. Currently, AUD/USD is moving in the range of 0.7177.
That position was not far from the daily opening price. Based on the data it is clear that this pair is slumped again because of the overall situations happened.
Further Tightening might be Applied
The statement said that further tightening would be made to cope with the spike in inflation. The central bank noted that the economy has proven resilient while inflation is rising faster.
There is also an evidence that wage growth is rising. In the economic projection, GDP is expected to grow by 4.25% in 2022 and 2.0% in 2023. Consumer and business spending in general is in good condition.
Elsewhere, an increase in investment is underway mainly on construction work projects. Inflation for 2022 is projected to be around 6.0%, but by mid-2024 it is expected to fall to around 3.0%.
A data about Business Confidence in Canada
This indicator, which reflects business confidence in Canada, is the same as the Manufacturing PMI index from Markit. It's just that the data for Canada was created and released by the Richard Ivey School of Business.
That is based on the results of a survey of 175 purchasing managers across the country on the current state of the economy and business. The goal is to get an idea of the future economic outlook.
Canada's PMI is important for investors and businesses. It is known as the first option indicator. An index figure above 50.0 indicates an expansion of the industrial sector, while below 50.0 indicates a contraction.
