The RBA has again caught the markets off guard. In a surprising move, the RBA lifted the official cash rate by 0.25% to 4.75%. This was the first move since May 2010.
As a result the dollar soared back towards parity gaining nearly a whole US cent to 99.85 US cents.
Most analysts had expected the central bank to have left rates on hold due to the recent underlying inflation data falling within the RBA’s target range. However, the RBA governor, Glenn Stevens, stated that the board had looked beyond the recent inflation figures and had predicted that the risk of inflation over the medium term looked like it would be increasing again.
We will wait to see how the major banks react to this decision.
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CBA was the first major bank out of the blocks to raise interest rates, by 45 basis points – almost double the quarter-percentage point rise announced by the RBA.
Wonder what Joe Hockey has to say about this?
Well, never mind Joe Hockey, we got a Banana Smoothie from Westpac last time, I wonder what flavour smoothie we will get this time round.
This will become a political hot potato. Disband the Reserve Bank now!!! Let market forces determines the rate. Encourage more competition. Banks keep talking about funding costs blah blah whilst they choke off lending to small busines etc. I cannot believe they have become so influencial. We are becomming a centrally planned economy with the banks calling the shots. Bring back Ronald Reagan