RBA Contemplates 25 bps Hike Amid Inflation Concerns

AUD: RBA Considers 25bp Hike or On-Hold Decision

RBA Meeting minutes outcome is hold or hike 25 bps in next meeting. Labour growth is strong, slowing wage growth. Inflation on goods is lower, Service inflation is still higher. Higher rates makes higher taxes, loan rates and businesses are getting slower due to weak consumption. Inflation will be come to our target at 2025 is projected.

February RBA Meeting Minutes: Board Weighs 25 bps Hike vs. Holding Steady

AUDUSD is moving in downtrend line and market has reached lower high area of the pattern

During the meeting, the board considered the case for a 25 bps hike or maintaining the current stance. The stronger case was to hold steady, aligning with balanced outlook risks. The board gained confidence in inflation returning to target in a reasonable timeframe based on data. However, it acknowledged the need for more time before being certain about inflation.

The board agreed it was appropriate not to rule out another rate increase, emphasizing that hiking rates wouldn’t prevent future cuts in case of economic weakening. Noteworthy was the observation that forecasts assumed no further rate hikes for inflation to reach the target by 2025.

Goods inflation fell faster than expected, while service inflation remained high. Data on the labor market and consumption revealed weaker-than-expected trends. Consumption was affected by high inflation, increased taxes, and interest payments. The labor market, although relatively tight, experienced slowing wage growth in certain sectors.

Financial conditions were considered restrictive on some measures, though less so on others. Subsequently, Governor Bullock’s recent statements have diminished the relevance of these minutes.

Nevertheless, consider these points as a summary of our current situation. It’s surprising that the RBA genuinely deliberated on a rate hike in this meeting. While they can’t outright ‘rule it out,’ such a move would be an unexpected event at this stage, akin to a dark-colored swan in the financial landscape.

AUD: RBA Minutes: 25bp Hike or On-Hold Decision Considered

The Reserve Bank of Australia (RBA) released the February meeting minutes on Tuesday, revealing that the board found the case for maintaining steady rates to be stronger, considering balanced risks. Key points include increased confidence in inflation returning to target, the acknowledgment of time needed for confidence in inflation, and the agreement not to rule out another rate hike. The board also noted the flexibility to cut rates if the economy weakens and highlighted concerns about weaker-than-expected data on the labor market and consumption. The minutes outlined challenges such as high inflation, increased taxes, and interest payments impacting consumption, as well as varying financial conditions. Forecasts assumed no further rate hikes for inflation to reach the target by 2025.

AUD: RBA Contemplates Rate Hike in Feb Meeting – Minutes

RBA Mulls Rate Hike Amid Inflation Concerns in February Meeting

The Reserve Bank of Australia, in its February meeting, contemplated raising interest rates further, as revealed in Tuesday’s released minutes. While the official cash rate target remained at 4.35%, the minutes disclosed discussions on a potential 25 basis points hike due to persistent worries about stubborn inflation.

AUDUSD is moving in Ascending channel and market has reached higher low area of the channel

The bank adopted an unexpectedly hawkish stance, cautioning that interest rates might rise further if inflation remains stickier than anticipated. Despite concerns, the RBA opted to hold, citing easing risks and the belief that inflation would return to the 2%-3% annual target range within a reasonable timeframe.

Recent data indicated a significant easing of Australian consumer price index inflation by the end of 2023, although it remained above the RBA’s target. The RBA’s expectations include reaching the inflation target range by mid-to-late 2025, with the midpoint achieved in 2026, accompanied by an anticipated economic cooldown and an increase in unemployment.

The minutes also revealed the RBA’s readiness to lower interest rates if the Australian economy weakened beyond initial projections. “Increasing the cash rate target now would not prevent the Board from easing monetary policy if the economy were to weaken more sharply than envisaged,” stated the RBA minutes.

Uncertainty looms over the Australian economy in the coming months, especially with deteriorating global economic conditions and an uncertain inflation trajectory. Following the minutes’ release, the Australian dollar experienced a 0.2% decline.

AUD: AUD/USD Forecast: RBA Minutes Signal Rate Hikes Amid Inflation Worries

RBA Meeting minutes outcome is hold or hike 25 bps in next meeting. Labour growth is strong, slowing wage growth. Inflation on goods is lower, Service inflation is still higher.

Higher rates makes higher taxes, loan rates and businesses are getting slower due to weak consumption. Inflation will be come to our target at 2025 is projected.

RBA Meeting Minutes Set Initial Tone

Investor attention was captured on Tuesday as the RBA Meeting Minutes were released. The RBA kept the possibility of a rate hike open during the February 6 monetary policy decision. RBA Governor Michele Bullock, during the press conference, refrained from indicating whether rates would rise or fall.

– RBA Meeting Minutes highlighted ongoing concerns about inflation.

– The Board acknowledged progress but deemed more effort necessary toward meeting objectives, expressing lingering uncertainty about the outlook.

– Inflation persisted above the target, particularly in services, indicating excess demand.

– Board members noted high demand relative to the economy’s supply potential, contributing to inflationary pressures.

– Consideration was given to a potential 25 basis points increase in the cash rate.

AUDUSD is moving in Descending channel and market has fallen from the lower high area of the channel

– Despite this, the Board perceived a reduced risk of inflation not returning to the target within a reasonable timeframe and deemed the inflation timeline acceptable.

– High uncertainty about the economic outlook persisted, and the RBA remained worried about the long-term impacts of persistent inflation.

– Given concerns about inflation, the Board did not rule out the possibility of further rate hikes.

– Central banks, including the PBoC, will be in the spotlight this week.

The PBoC, Loan Prime Rates, and China’s Economic Impact

– Anticipated PBoC moves include lowering the 1-year loan prime rate from 3.45% to 3.30% and the 5-year loan prime rate from 4.20% to 4.05%.

– Increased policy support for the Chinese economy could benefit Australia, given China’s substantial contribution to Australian exports (one-third). With a trade-to-GDP ratio exceeding 50% and 20% of the labor market in trade-related jobs, PBoC measures might stimulate demand for Australian goods, the economy, and the Aussie dollar.

US Economic Calendar: CB Leading Economic Index and Federal Reserve Focus

– The spotlight on Tuesday is the CB Leading Economic Index, expected to decline by 0.3% in January after a 0.1% drop in December.

– December’s identification of weak consumer sentiment by the Conference Board may amplify expectations for a May Fed rate cut if the macroeconomic environment worsens.

– Despite six out of ten leading indicators contributing positively in December, forecasts suggest signals of an economic downturn.

– Beyond the numerical data, investor attention should encompass commentary from FOMC members. Perspectives on inflation and the timing of Fed rate cuts could impact buyer interest in the AUD/USD.

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