RBA Hikes Interest Rates, Australian Dollar Drops

November 07, 2023 23:03

The Reserve Bank of Australia (RBA) raised interest rates in line with market expectations by 25 basis points. Despite the rate hike, the Australian dollar faced significant pressure as the RBA’s board suggested that “whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable time frame will depend upon the data and the evolving assessment of risks.”

In the UK, a survey by Bloomberg Economics showed a 52% chance that the UK entered a recession in the third quarter of the year and is on course to contract even more in the current quarter. Bloomberg’s analysts suggested that the Bank of England (BoE) could be forced to reduce rates if inflation also drops as a result of recession pressure.

The International Monetary Fund (IMF) upgraded its gross domestic product (GDP) growth forecasts for China to 5.4% in 2023 and 4.6% in 2024. The IMF revised its forecast as the Chinese government approved a 1 trillion yuan ($137 billion) sovereign bond issue.

RBA Hikes Interest Rates

As noted earlier, the RBA’s governing board moved forward with the 13th interest rate hike since March 2022 as it was expected by market analysts. The post-meeting statement said that “inflation in Australia has passed its peak but is still too high and is proving more persistent than expected a few months ago” adding that new data collected since August show that “the weight of this information suggests that the risk of inflation remaining higher for longer has increased.”

HSBC’s analysts told Financial Times reporters that the RBA is in “calibration” mode, adding that a rate hike in December is, in their opinion, unlikely. According to the same media report, the Australian Chamber of Commerce And Industry stressed that the return to monetary policy tightening would add to the “tightrope” for businesses as they sought to manage increased costs while maintaining competitive pricing.

BoJ Minutes: Price Stability Target Hasn’t Been Achieved

In Japan, the BoJ’s September minutes revealed that policymakers believe that the price stability target has not been achieved with most board members suggesting that there would be no need to take additional steps on the Yield Curve Control (YCC) operations as long-term rates are relatively stable.

Economists said that the BoJ could continue implementing its ultra-accommodative policy that weakens the Japanese yen against its competitors such as the US dollar.

Commerzbank: Swiss National Bank Likely To Favour A Strong Franc

A report released by Commerzbank suggested that inflation data published last week were not concerning for the Swiss National Bank (SNB).

Economists at the German bank suggested that the SNB could favour the strong Swiss Franc in order to control inflation, noting that “the most recent inflation data provides little cause for concern. Of course, there are upside risks for inflation and the SNB expects a renewed moderate rise in the annual rate over the coming quarters, but this is unlikely to be sufficient for a further tightening of monetary policy. Instead, the SNB is likely to maintain its hawkish communication in view of increased uncertainty.  Against the background of the crisis in the Middle East, the Franc is likely to principally remain in demand as a safe haven anyway.”

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

Miltos Skemperis
Miltos Skemperis Financial Content Writer

Miltos Skemperis’ background is in journalism and business management. He has worked as a reporter on various TV news channels and newspapers. Miltos has been working as a financial content writer for the last seven years.