AUD: RBA hikes as oil shock bites – Rabobank

Rabobank's Senior Market Strategist Benjamin Picton reports the Reserve Bank of Australia (RBA) has delivered a third consecutive 25 bp hike, taking the cash rate to 4.35% and matching the previous cycle high. Governor Bullock describes policy as “a bit restrictive” and warns Australians are poorer due to higher Oil prices. RBA’s projections assume the Iran war ends soon and the Strait of Hormuz reopens.

RBA tightens into Iran-driven shock

"Effectively, Iran and the US are playing chicken with global energy supply chains. Iran is enduring damage directly from Economic Fury but is holding a metaphorical gun to the heads of US allies in Europe and Asia, who are facing looming shortages of key commodities and the consequent negative effects on growth, employment and inflation. The question remains: who will blink first?"

"This hostage dynamic is not lost on RBA Governor Michele Bullock who yesterday told journalists in Sydney that “Australians are poorer because of this shock to oil prices... We are poorer, and there’s no way out of that.”"

"Bullock delivered this grim prognosis after the RBA lifted the Australian policy rate by 25bp to 4.35%."

"This was the third-consecutive rate hike from the RBA and brings the cash rate equal to the previous cycle high that was reached in the aftermath of the COVID-19 and Ukraine War supply shocks."

"Bullock characterised the new posture of monetary policy in Australia as “a bit restrictive” and indicated that the Board feels that it has given itself a bit of breathing space to pause and assess the unfolding impacts of the Iran war, and what the implications will be for growth and inflation."

"However, she also noted that the RBA’s updated economic projections are predicated on the war ending “soon”, and the Strait of Hormuz reopening."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)