RBA raises cash rate by 50 bps to 0.85%

• Prior 0.35%

• Also increased the interest rate on Exchange Settlement balances by 50 bps to 0.75%
• Inflation in Australia has increased significantly
• Inflation is expected to increase further, but then decline back towards the 2% to 3% range next year
• Australian economy is resilient; household and business balance sheets are generally in good shape
• One source of uncertainty about the economic outlook is how household spending evolves
• Rate hike is a further step in the withdrawal of the extraordinary monetary support during the pandemic
• The resilience of the economy and the higher inflation mean that this extraordinary support is no longer needed
• RBA expects to take further steps in the process of normalising monetary conditions in Australia over the months ahead
• The size and timing of future interest rate increases will be guided by the incoming data and assessment of the outlook for inflation Inflation Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods.In terms of assessing the strength or currencies, and by extension foreign exchange, inflation or measures of it are extremely influential. Inflation stems from the overall creation of money. This money is m Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods.In terms of assessing the strength or currencies, and by extension foreign exchange, inflation or measures of it are extremely influential. Inflation stems from the overall creation of money. This money is m Read this Term and the labour market
• Full statement

The RBA is certainly liking the idea of not playing it straight now, do they? The expectation coming into the decision was either for a 25 bps move or a 40 bps move, but here they are delivering a 50 bps move instead.

RBA cash rate futures showed a pricing of just over 25 bps (0.56%) so the aussie is gaining strongly on the back of the decision. AUD/USD is up 0.6% to 0.7245 as the RBA doesn't disappoint the hawks.

That could invite a more aggressive push towards hiking in the months ahead and will be a tailwind for the aussie, despite a lot of rate hikes already priced into the front-end of the curve. Cash rate futures show that markets are expecting a push towards 3% by February next year.

They are laying down the hammer that there will be more rate hikes coming and it mainly boils down to the size of the increases at this stage. For now, there isn't anything to suggest that the RBA will step back from that and the language reaffirms that.

The only thing that may cap aussie gains today will be the more sluggish risk sentiment with equities pinned lower.