The Reserve Bank of Australia increased its cash rate by 25 basis points to 4.35%, aligning with market forecasts. This hike, after maintaining the rate at 4.1% for the past four meetings, signaled a response to persistent inflation driven mainly by soaring service prices. This move, the 13th increase since May 2022, has brought borrowing costs to their highest since January 2011. Projections now suggest CPI inflation to hover around 3.5% by the close of 2024, reaching the upper limit of the 2 to 3% target range by the end of 2025.
Newly appointed governor Michelle Bullock stated that any further measures to re-align inflation with targets will hinge on forthcoming data and the evolving risk assessment. The board emphasized its vigilant observation of the global economy, domestic demand patterns, inflation outlook, and the labor market. Additionally, the interest rate on Exchange Settlement balances was also raised to 4.25%.
China records a Declined Trade Surplus!
Elsewhere China saw a significant contraction in its trade surplus, plummeting to $56.53 billion from $82.35 billion in the same period a year earlier, falling well below market projections of $82 billion. This marked the smallest trade surplus since February, primarily due to a more substantial decline in exports than anticipated, reflecting prolonged weak demand from overseas. Meanwhile, there was an unexpected upswing in imports. Exports experienced a sharper decline of 6.4%, surpassing the forecasted 3.3% decrease. Surprisingly, imports grew by 3%, marking the first increase since February, notably surpassing the expected 4.8% decline. This growth was spurred by Beijing's efforts to enhance domestic demand.
The trade surplus with the United States also narrowed in October, reaching $30.82 billion compared to $33.119 billion in September. Reviewing the period from January to October, the country's overall trade surplus shrank by 2.7% to $684.04 billion, attributed to a 5.6% decrease in exports and a 6.5% decline in imports.
The implications?
The Australian dollar dipped to approximately $0.646, moving away from its recent three-month highs, following the Reserve Bank of Australia's anticipated decision to raise the cash rate by 25 basis points to 4.35% in its November meeting. This adjustment was a response to unexpectedly persistent inflation, notably exceeding forecasts in the country's third quarter. Projections indicate consumer inflation is poised to reach around 3.5% by the conclusion of 2024, hitting the upper range of the 2 to 3% target by the end of 2025.
The board emphasized that future policy determinations will rely on forthcoming data, underscoring its commitment to closely monitoring risks in both the global and domestic economies. Simultaneously, the Melbourne Institute's Monthly Inflation Gauge revealed a 0.1% decrease in October, marking the first decline in prices in fourteen months.
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