PREVIOUS TRADING DAY EVENTS 02 May 2023

Announcements 

Shock interest rate rise from the Reserve Bank of Australia RBA yesterday, 2nd May. RBA decided to increase the cash rate target by 25 basis points to 3.85. RBA also said that some further tightening may be required to ensure that inflation returns to target in a reasonable timeframe.

Inflation in Australia is at 7 and policymakers of course stated that its still too high. A further increase in interest rates is inevitable if inflation is ever going to return to the target level. This unexpected rise caused the AUD to appreciate highly.

Inflation in Australia has passed its peak, but at 7 per cent is still too high and it will be some time yet before it is back in the target range, said Governor Philip Lowe.

Given the importance of returning inflation to target within a reasonable timeframe, the Board judged that a further increase in interest rates was warranted today.

Inflation is expected to slow by 4.5 this year, compared to the previous forecast of 4.75.

This is an awfully long time for inflation to exceed target, and runs the risk that higher inflation expectations will become embedded, said Sean Langcake, Head of Macroeconomic Forecasting for BIS Oxford Economics.

This would ultimately lead to even higher interest rates, which the Bank is looking to avoid as it seeks to keep some momentum in the economy.

Source…