Australia Responds To 5% Inflation: Rates Up!

Reserve Bank of Australia joined the group of institutions that are trying to control rising inflation by raising interest rates. The series of increases has already been initiated by, among others: Federal Reserve, Bank of England, Bank of Switzerlandand will be joining them soon European Central Bank.

The Reserve Bank of Australia (RBA) raised in June this year. a cash rate by 50 basis points, down to 0,85%, thus starting the first in 12 years cycle of interest rate increases in that country. The bank's management board argued that huge monetary support is no longer needed due to the strength of the economy and the labor market, where employment grew and the unemployment rate fell to the lowest level in nearly 50 years.

Australia's currency is losing out, but relatively little

Inflation, which in Australia is 5,1%, requires - according to the RBA - a response. Hence, bank decision makers announced that they plan to further tighten monetary policy. The scope and schedule of their activities will depend on, inter alia, incoming data and the opinion of the RBA Council.

The Australian central bank aims to bring inflation down to a target of 2-3%. and at the same time prevent the Australian dollar from depreciating too much, which could further import inflation. Since the beginning of the year, the AUD has lost 4,3% to USD, which is one of the smaller losses among the world's major currencies.

The last Japanese stand

For comparison, the Japanese yen weakened against the USD by almost 15%. The fact that Bank of Japan it remains the last of the world's major banks, which does not intend to raise interest rates at the moment, and at the same time protects the market against an increase in Japanese treasury bond yields.

In the case of securities with a maturity of 10 years, the maximum permitted level is 0,25%. In the forex market there seems to be a growing number of institutions willing to play to break the Bank of Japan. If that happened, the yen could definitely strengthen.