The Reserve Bank of Australia (RBA) Monetary Policy Meeting

Australia dollar got strong yesterday and AUD/USD was trading at 0.7030 which was up 0.57% on the day.

Reserve Bank of Australia is having a meeting today and it is expected that it will deliver an increase of 0.50%bp, which will bring the Cash rate to 1.85%. The markets have priced in a 50bp increase at 0.75%. The central bank continues to battle with rising inflation, with the CPI in the second quarter rising to 6.1%, which is up by 5.1% as compared to first quarter. Parliament was informed that the Government expects inflation to increase at 7.75% in forth quarter, and will gradually reduce in 2023 and fall to 2.75% in 2024.

IF Australian Treasurer Chalmers number is accurate which was mentioned in Parliament, then the cost of living will worsen before it improves and the central bank will likely have to keep tightening, with plenty more inflation to come.

Chalmers noted that the country’s biggest concerns are surging inflation and slowing global growth. The government revised lower its GDP forecast for 2021-2022 to 3.75% which is down from 4.5% and the 2033-2023 forecast from 3.5% to 3.0%.

The RBA has a sensitive task of raising rates to curb inflation but not slowing the economy to the extent that it tips into a recession. The labor market remains strong, and important indication that the economy is strong to withstand further rate hikes. Today’s rate hike of 0.50% as it is expected, is unlikely to impact on the Australian dollar, except for some short-lived reaction after the rate will be announced, as external factors are the main driver behind the Aussie’s movement.