Australia’s RBA halts rate hikes, boosting the ASX 200 index

The Reserve Bank of Australia (RBA) decided to stop its interest rate hikes in its February meeting. In a statement, the bank decided to leave interest rates unchanged at 3.60%, in line with what analysts were expecting.

RBA interest rate decision

The RBA, like other global central banks, has been in a tightening phase in the past few months. It has managed to hike interest rates from zero to 3.6% as it continues fighting the elevated inflation. 

The bank decided to take a strategic pause in a bid to assess the impact of these increases to date and the economic outlook. Historically, monetary policy’s impacts tend to have a lag. As such, the pause will give it time to assess more economic data. In a statement, Philip Lowe insisted that the bank could decide to hike interest rates further later this year. He said:

“The Board expects that some further tightening of monetary policy may well be needed to ensure that inflation returns to target. The decision to hold interest rates steady this month provides the Board with more time to assess the state of the economy and the outlook, in an environment of considerable uncertainty.”

The RBA warned that the growth of Australia’s economy has slowed. It expects growth in the next few quarters to be below historical trends. It attributes this slowdown to relatively higher interest rates and high inflation.

AUD/USD, ASX 200 reacts to RBA

The Australian dollar declined slightly after the latest RBA decision. The closely-watched AUD/USD pair dropped to a low of 0.6757 because traders expect the Fed to be more hawkish than the RBA. 

Meanwhile, the AUD/NZD price crashed to a low of 1.0731, which was ~0.56% below the lowest level this month. The Reserve Bank of New Zealand (RBNZ) is expected to hike interest rates again this week.

Meanwhile, the ASX 200 index rose by 20 basis points as the hiking cycle ended. Bank stocks were among the top laggards. Westpac’s share price dropped by 0.39% while Commonwealth Bank, National Australia Bank (NAB), AND ANZ Group shares dropped by over 0.40%.