The Australian sharemarket slipped on Tuesday after the Reserve Bank surprised investors by lifting the cash rate by 25 basis points.
The market had largely expected interest rates to be on hold this month, and the shift in the RBA’s approach has raised concerns more hikes could be on their way.
“Markets were trundling along nicely earlier in the day but took a negative stance on the decision,” he said. “It had a lot to do with the commentary by the RBA that it could potentially raise rates even further if inflation stays stubbornly high and employment remains at an all-time high as well.” Street Global Markets head of APAC macro strategy Dwyfor Evans said prices for services and rising labour costs were the main driver behind the Reserve Bank’s decision.
“Today’s decision may reflect a subtle shift in emphasis to err toward targeting a more rapid decline in inflation,” Miller said. “Last week’s release of the RBA review, commissioned by Treasurer Chalmers, recommended a greater focus on the mid-point of the 2-3 per cent target range rather than simply being content with being in the range itself. At the margin that may have encouraged the subtle shift in emphasis revealed by today’s decision and the governor’s subsequent statement.
The difference between the stock market’s reactions to them and First Republic Bank, which plunged 75 per cent last week, indicates investors may see it as an isolated event rather than a problem with the deeper system, analysts said. The hope is that may be the final increase for a while, which would give the economy and financial markets more breathing room.
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