Analysts at TD Securities note that the Reserve Bank of Australia (RBA) surprised the market by raising its policy rate by 25 basis points to 3.85%.
Will assess RBA call following the SoMP on Friday
“We expected the Bank to remain on hold at 3.60% after last week’s Q1 CPI release revealed inflation fell by more than the RBA expected.”
“The preliminary forecasts provided in today’s Statement on balance do not appear significantly different from the February Statement of Monetary Policy (SoMP) forecasts and on balance supported the Bank remaining on hold in our view.”
“While the minutes of the April meeting were hawkish and read as more supportive of a hike than a pause at that meeting, today’s Statement suggests the Bank may have a few more hikes up its sleeve to deliver. We will assess our RBA call following the SoMP on Friday and potentially after the 9th May Federal Budget.”
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The Reserve Bank of Australia (RBA) may have a few more interest rate hikes up its sleeve as a means of stimulating the economy, according to TD Securities (TDS).
The Australian economy is currently in a good place, with strong job growth and good growth in wages. However, many economists are concerned that inflation remains too low. In response, the RBA is considering increasing the interest rate in order to stimulate the economy and encourage spending, which increases demand and drives up prices.
TDS economists believe that the RBA has done a good job of weighing the risks associated with raising the interest rate, and that the bank is likely to hold any increases until the economy is in a better place. TDS economists, along with many others, are expecting the RBA to keep the interest rate at its current level for an extended period of time.
However, TDS believes that the RBA may have a few more hikes up its sleeve if needed in order to stimulate the economy. This view is particularly relevant given the RBA’s actions earlier in the year when the cash rate was cut from 1.5% to 1%. TDS’s economists believe that, depending on how the economy responds, the RBA could take action by potentially making a few more tweaks to the interest rate at the beginning of 2019.
The next meeting of the RBA’s Board will take place in early February, and they will announce their decision at that time. Until then, all eyes will be on the economy to see how it progresses and if further rate hikes may be necessary.