RBA increase interest rates by .25% to 7.25% (12 year high)
04 March 2008
As widely expected, the RBA has announced a 0.25% increase in the Cash Rate to 7.25%. The Cash Rate was last this high in early 1996!
The pertinent points in the RBA’s accompanying statement are:
-Rate hike to contain and reduce inflation.
-Significant slowing in demand is necessary
-Tightening in financial conditions is substantial since mid-2007.
-Tentative evidence of a moderation in household demand
-Extent of moderation is uncertain
-Labour market conditions remained strong into early 2008
-World economy slowing, global growth to be below trend in 2008-03-04 Rising commodity prices have strengthened prospects for Terms of Trade
-Inflation to rise further in year ended terms
-Inflation will moderate in 2009
-Global market sentiment remains fragile
-Inflation to remain relatively high in short term
The AUD has ultimate traded lower, having been rather volatile immediately prior to the rate increase. The rate hike and statement were fully priced in by the market. The interest rate market has still priced in another 0.25% rate hike before the end of 2008