The local market ended the day lower, with the ASX 200 down 0.22%, after the RBA raised interest rates by a further 0.25% to 4.35%.
However, sector performance was split with the Tech sector up 1.67% while the interest rate-sensitive Financials sector was 1% lower.
Also feeling the RBA’s decision were real estate investment trusts (REITS) Scentre and Dexus which each dropped 2.3% before paring losses as the day went on.
Healthcare is up half a per cent despite being an interest rate-sensitive sector — Pro Medicus added 3% and Cochlear is up 1.3%.
RBA rate decision
As widely expected, the Reserve Bank of Australia today raised the cash rate by 0.25% to 4.35% — taking rates to their highest level in 12 years.
This is the RBA’s first rate rise since July and follows exceptionally high price growth in the September quarter, along with strong retail sales numbers. The RBA wants to return inflation to its target band of 2-3% by the end of 2025.
The Australian dollar lost a quarter of a cent in response, to US64.62¢, amid speculation that this won't be the central bank's last rise of the cycle.
The following is from the RBA’s statement:
“Inflation in Australia has passed its peak but is still too high and is proving more persistent than expected a few months ago. The latest reading on CPI inflation indicates that while goods price inflation has eased further, the prices of many services are continuing to rise briskly.
“While the central forecast is for CPI inflation to continue to decline, progress looks to be slower than earlier expected. CPI inflation is now expected to be around 3.5% by the end of 2024 and at the top of the target range of 2 to 3% by the end of 2025.
“The board judged an increase in interest rates was warranted today to be more assured that inflation would return to target in a reasonable timeframe.”
“Given that the economy is forecast to grow below trend, employment is expected to grow slower than the labour force and the unemployment rate is expected to rise gradually to around 4.25%. This is a more moderate increase than previously forecast.
"Wages growth has picked up over the past year but is still consistent with the inflation target, provided that productivity growth picks up.
“Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks.”
On this last point, NAB head of market economics Tapas Strickland noted, “[the RBA] softened its tightening bias from previous statements by adding the word ‘whether”.
State Street Global Markets head of APAC macro strategy Dwyfor Evans said:
“The recent higher-than-expected CPI prints clearly swayed the decision towards another hike. The focus on a 4-handle jobless rate also alludes to a continued strong labour market, which is important to the extent that it offsets fears of higher debt servicing costs given the propensity towards variable rates in Australia.
"It should also underpin consumer spending. A muted reaction, which reflects the bias towards expectations of a hike over recent days.”
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