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ASX 200 surges as RBA delivers a 25bp rate hike and softens its forward guidance


MongiIG

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As widely expected, the Reserve Bank Board raised its official cash rate today by 25bp from 3.35% to 3.60%. However, it has again wrong-footed markets as it softened its (one-month-old) hawkish forward guidance.

 

BG_rba_reserve_bank_australia_321651651.Source: Bloomberg

 
 Tony Sycamore | Market Analyst, Australia | Publication date: Tuesday 07 March 2023 

As widely expected, the Reserve Bank Board raised its official cash rate today by 25bp from 3.35% to 3.60%. However, it once more wrong-footed markets as it softened its (one-month-old) hawkish forward guidance.

At its last Board Meeting in February, the RBA, pushed by hotter-than-expected December quarter inflation data, delivered a 25bp rate hike along with a hawkish forward guidance warning that further interest rate “increases” were needed over the “months” ahead.

“The Board expects that further increases in interest rates will be needed over the months ahead to ensure that inflation returns to target and that this period of high inflation is only temporary.”

Since the February Board Meeting, some preliminary signs have emerged that the economy is slowing, including softer wages, GDP, and unemployment data, which allowed the RBA to replace the statement above with the one below.

“The Board expects that further tightening of monetary policy will be needed to ensure that inflation returns to target and that this period of high inflation is only temporary.”

In the lead-up to today’s meeting, we thought it would be unlikely that the RBA would shift paths again quite so suddenly.

However, we noted in our preview here that if the words “increases” and “months” were missing, it would allow a more dovish tone to emanate from the statement.

The subtle adjustments in the paragraph above provide the RBA with the option to deliver one more rate hike in April and then to go “on hold” presuming that the March quarter inflation data to be released on April 26th shows signs of moderation.

How did the ASX 200 react?

Following the RBA’s announcement, the ASX 200 surged over 40 points to 7370.3, its highest level since mid-February.

The interest rate-sensitive Financials and Consumer-facing sectors led the index higher, relishing the softening in forward guidance and the ~15bp easing bank bill yields that followed the announcement.

At a single stock level:

The big banks all made gains.

  • ANZ added 1% to $24.45
  • Westpac added 0.91% to $22.28
  • NAB added 0.85% to $29.73
  • CBA added 0.5% to $99.10.

The wild ride in Megaport continued after it fell 13.41% to $4.97 after CEO Vincent English resigned.

After four consecutive down weeks, the ASX 200 last week held and bounced from the top of the 7200/7000 support band we called for in late January.

Providing this support level continues to hold, we expect to see the current rebound extend towards the 7400/7600 resistance area.

ASX 200 daily chart

 

XJO_2023-03-07_15-27-58.pngSource: TradingView

The figures stated are as of March 2nd, 2023. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.

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