RBA hikes rates, focus on Powell's speech
The Reserve Bank of Australia (RBA) raised borrowing costs by 0.25%, in line with market analysts’ expectations. Economists suggest that Australia’s central bank is likely to follow up with another rate hike in March.
Oil prices rose on Tuesday, helped by optimism over the recovery in demand from China, the largest crude importer in the world. Saudi Arabia raised crude oil prices for Asian buyers on Monday for the first time in six months, expecting increased demand. According to a BP report, the company posted record annual profits, more than doubling last year’s total.
In other news, the AI war rages on with Google announcing BARD, an experimental AI service similar to ChatGPT. In China, Baidu shares hit an 11-month high when the company said that it aims to launch its own artificial intelligence chatbot called “Ernie bot."
RBA raises borrowing costs
As it was anticipated, the RBA’s governing board announced one more rate hike by 25 basis points with its benchmark interest rate pushed now to 3.35%, the highest level recorded in the last 11 years. This is the fourth consecutive 25 basis points interest rate hike by the RBA and the ninth consecutive interest rate hike after the pandemic period.
Economists note that, despite the RBA’s monetary tightening policy, inflation doesn’t show signs of a slowdown. In a post-meeting statement, the RBA’s Governor Philip Lowe said that “inflation is expected to decline this year due to both global factors and slower growth in domestic demand.” Lowe added that the RBA forecasts inflation to come in at 4% in 2023 and 3.5% in 2024.
The RBA’s announcement boosted the Australian dollar’s value against the US dollar with the Australian currency gaining 0.68%.
Will Jerome Powell’s speech boost the US dollar?
The US Federal Reserve’s Chairman Jerome Powell is expected to speak later in the evening before the Economic Club of Washington. Last week, Powell’s comments on disinflation led investors to bid shares higher and to ignore the chance of another interest rate hike by the central bank. Market participants seem to focus more on declining inflation figures rather than low earnings reports and anticipated rate hikes.
Janet Yellen sees no recession
In the meantime, US Treasury Secretary Janet Yellen speaking to ABC said that the country’s economy remains resilient. More specifically, she noted that “you don't have a recession when you have the lowest unemployment rate in 53 years.” Commenting on price rises, Yellen noted that inflation is high but figures are in decline, adding that “I am confident the US will find a path where inflation declines significantly and economy remains strong.”
Bank of England to proceed with further rate hikes?
Sterling dropped to a one-month low against the US dollar on Monday although a BoE board policymaker argued that the central bank should continue its monetary policy tightening. In her remarks, Catherine Mann said that it would be a mistake to stop raising borrowing costs now.
Commenting on the BoE’s monetary policy, she noted: “If inflation indeed is more persistent, then Bank Rate will need to rise again after the pause, to be followed later with reversal. In my view, a tighten-stop-tighten-loosen policy boogie looks too much like fine-tuning to be good monetary policy.”
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