RBA raises cash rate by 25 bps to 0.35%

• Prior 0.10%

• Also increased interest rate on Exchange Settlement balances from 0% to 0.25%
• Now was the right time to begin withdrawing stimulus
• Outlook for economic growth remains positive
• Inflation has picked up significantly and by more than expected
• A further rise in inflation is expected in the near-term
• But as supply-side disruptions are resolved, inflation is expected to decline back towards the target range of 2% to 3%
• RBA committed to doing what is necessary to ensure that inflation returns to target over time
• This will require a further lift in interest rates over the period ahead
• To closely monitor future developments to determine the timing and extent of future rate hikes
• Full statement

This is like a bit of a Goldilocks decision by the RBA as they do give out a more hawkish undertone by hiking by 25 bps, instead of the 15 bps as expected. A 40 bps rate hike might have been the more aggressive approach but they are seemingly taking a more modest touch with this, and to be fair it is one that will not spook markets too much.

That said, the central bank does see 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 hitting 6% this year. Besides that, it is interesting to note that the RBA says that it does not intend to sell the government bonds purchased during the pandemic.

All in all, it's a cheeky move by the RBA to go with 25 bps as market expectations were either "go big or go home".

They also played it coy on the timing and extent of future rate hikes but given their inflation outlook, one can expect more consistent rate hikes to follow in the meetings to come.

The aussie has benefited from the decision, with AUD/USD rising up from 0.7090 to 0.7140.