OPINION
Market Rating Before FOMC MeetingJan 31
RBA Makes Biggest Rate Hike in 22 Years
The bank made the biggest tightening in 22 years by increasing the policy interest rate by 50 basis points to 0.85 percent. During this period, market expectations were that the bank would raise interest rates by 25 basis points.
Looking at the resolution text of the RBA, it was pointed out that inflation increased significantly, albeit lower than most other developed countries, while it was emphasized that global developments, including disruptions in supply chains due to the coronavirus epidemic and the war between Russia and Ukraine, were effective. However, it was noted that capacity constraints in some sectors and the tight labor market contributed to the upward pressure on prices.
The Bank pointed out that increases in electricity, gas, and oil prices may push inflation higher than previously anticipated in the near term.
Recalling that the Australian economy grew by 0.8 percent in the first quarter and 3.3 percent annually, RBA stated that household and business balance sheets are generally in good condition and the upward trend in business investments continues. In addition, emphasizing that the labor market is very strong, the bank underlined that employment increased significantly and unemployment was at 3.9 percent, the lowest level in almost 50 years.
The bank highlighted that central banks of developed countries withdrew their monetary policy support in response to broad-based inflation. However, it was also stated that uncertainties regarding Covid-19 continue in China.
In the text, it was stated that today's decision is another step in withdrawing the extraordinary monetary support applied by the bank to help the Australian economy during the pandemic and the resilience of the economy and levels of inflation mean this extraordinary support is no longer needed.
Evaluating that interest rates are still at a very low level in the face of current inflationary pressures in the economy, the bank noted in the decision text that the size and timing of future interest increases will be evaluated within the framework of data. It was also added in the article that the members of the Board were determined to ensure that the inflation in the country returned to the target range over time.
After the decision, RBA Chairman Philip Lowe's statement that “further steps may be needed in the process of normalizing monetary conditions in the country “came to the fore.
