After a bearish start to the week, the local Aussie index rallied for its best day in years increasing a massive 3.75% ending the day at 6699.30 points.
The US markets also improved drastically on Monday night after a dreadful week last week, which bolstered the start of the ASX 200 index gain. But at 2:30 this afternoon, the RBA put some fire under the rally after taking a ‘dovish’ approach in monetary policy by only increasing the national cash rate only by 25 basis points as opposed to the market which priced in an almost certain increase of 50 basis points.
This approach was carefully considered by the RBA for a few reasons. Primarily, the RBA expects inflation to peak at about 7.75% for the year to eventually come down in the coming years. But more importantly for everyday investors, the central bank is taking a more passive approach to view how the six initial rate hikes will affect both consumer spending and house mortgage repayments for Australians.
On the positive side, however, the domestic economy appears quite resilient with unemployment maintaining at 3.5% which is the lowest in 50 years.
Despite this initial slowdown, the central bank still maintained its importance to reduce the inflation rate overtime and will continue to increase rates as necessary.
According to Dr. Phillip Lowe’s statement:
“It is closely monitoring the global economy, household spending and wage and price-setting behaviour. The size and timing of future interest rate increases will continue to be determined by the incoming data.”