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Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.

Reserve Bank of Australia hikes cash rate to 4.35%

The Reserve Bank of Australia hiked its cash target by 25 basis points to 4.35% on Tuesday, ending four months of steady policy, a move that was expected after inflation came in higher than forecast last quarter.

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Rates have now risen by 425 basis points since May last year. Wrapping the meeting, RBA governor Michele Bullock said recent data suggested there was a risk inflation would remain higher for longer. IGTV’s Angela Barnes has this round-up.

(AI Video Transcript)

The Reserve Bank of Australia

The Reserve Bank of Australia (RBA) has recently raised its interest rate to the highest level in 12 years, reaching 4.35%. This decision follows several months of unchanged policy and was expected due to higher-than-predicted inflation. The interest rates have now risen by a total of 425 basis points since May 2021. The Governor of the RBA, Michele Bullock, expressed concerns about the possibility of prolonged high inflation based on recent data. The central bank's own forecast for the Consumer Price Index (CPI) has been revised to a 3.5% increase by the end of 2024, with the target inflation rate expected to be met by the end of 2025.

Michele Bullock

Bullock's remarks indicated that further tightening of monetary policy would depend on the evolving assessment of risks and data, suggesting a step back from the October decision. This change in stance has led to speculation in the market that this could be the final interest rate hike for now. As a result of the rate hike, the Australian dollar has decreased in value compared to the USD, currently down by 0.92%. This decline contrasts with the previous week when the AUD/USD experienced a significant increase of over 3%, the best performance since November 2022.

Overall, the RBA's decision to raise interest rates reflects concerns about rising inflation and the need to address the risk of prolonging inflationary pressures. The impact on the AUD indicates that while the rate hike was somewhat expected, it still had a negative effect on the currency's value.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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