RBA flags more rate hikes, surprises with 25bp to 0.35%

RBA raised its cash rate by a surprise 25 basis points to 0.35 per cent versus the expected 15 basis points hike to 0.25 per cent.

The central bank said that now is the time to begin withdrawing stimulus, citing the speed and size in the rate of inflation with evidence pointing to wages growth rising ahead of the May 18 figures. The RBA announced details on quantitative tightening with no surprises with the central bank, favouring a bond roll-off rather than a sale, similar to the moves from the US Federal Reserve.

Governor Philip Lowe said the board will do what is necessary to ensure that the inflation rate returns to its target over time by the tool of raising interest rates. As expected, the RBA upgraded inflation and its employment forecasts on this assumption. The headline 2022 inflation target of 6 per cent with the underlying inflation rate at 4.75 per cent by mid 2024 has been earmarked, before moderating to around 3 per cent.

As expected, there was a sell-off in both equities and bonds, while the Aussie dollar rose. The ASX fell 0.4 per cent from 7,340 to 7,309, the Aussie dollar jumped to 70.90 cents from 74.48 cents, treasury yields rose, prices lower with the 10-year advancing 6 basis points to a 7.5 year high of almost 3.36 per cent while on the short end, the 3-year rose 10 basis points to an 8 year high of around 2.98 per cent.

All eyes are now on the banks to see which one moves first after this announcement.

Investors now await the press conference at 4pm AEST for colour on the outcome.