RBA June meeting minutes says further rate hikes will be needed

Reserve Bank of Australia meeting minutes.

Headlines via Reuters:

• Board agreed that further steps would need to be taken to normalise monetary conditions in Australia over the months ahead
• Inflation was expected to increase further, before declining back towards the top of the 2 to 3 per cent range in 2023
• Committed to doing what is necessary to ensure that inflation in Australia returns to the target over time
• The resilience of the economy was most evident in the labour market
• Members agreed that there was a material risk that inflation would not return to the target if current policy settings were maintained
• Board felt 25bps increases every meeting this year would be a rapid tightening
• The main argument for an increase of 50 basis points was that the level of interest rates was still very low
• Members noted that either 25 bp or 50 bp rate rise would leave the cash rate below 1%, which would still be highly stimulatory, and that further increases would be required.

This:

• Board felt 25bps increases every meeting this year would be a rapid tightening

The RBA is interested in front-loading rate hikes, they'd likely not continue to go with another 25 at every remaining meeting this year. All subject to inflation developments, of course.

Full text is here:

Minutes of the June 2022 Monetary Policy Meeting of the Reserve Bank Board

We have been hearing from Governor Lowe already during the session:

• RBA Gov Lowe - says interest rates are very low

• AUD/USD (higher) update after RBA Gov Lowe speech

• RBA Gov. Lowe says will discuss 25bp or 50bp interest rate hike at July meeting (July 5)

• More from RBA Gov Lowe - waters down market expectations of 4% cash rate by year end

AUD/USD has traded higher for the session. The sharp wee dip (arrow) is where Governor Lowe said a 4% cash rate by year-end, being priced in by the market, was unlikely:

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 measured by the level of the total money supply of a specific currency, for example the US dollar, which is constantly increasing. However, an increase in the money supply does not necessarily mean that there is inflation. What leads to inflation is a faster increase in the money supply in relation to the wealth produced (measured with GDP). As such, this generates pressure of demand on a supply that does not increase at the same rate. The consumer price index then increases, generating inflation.How Does Inflation Affect Forex?The level of inflation has a direct impact on the exchange rate between two currencies on several levels.This includes purchasing power parity, which attempts to compare different purchasing powers of each country according to the general price level. In doing so, this makes it possible to determine the country with the most expensive cost of living.The currency with the higher inflation rate consequently loses value and depreciates, while the currency with the lower inflation rate appreciates on the forex market.Interest rates are also impacted. Inflation rates that are too high push interest rates up, which has the effect of depreciating the currency on foreign exchange. Conversely, inflation that is too low (or deflation) pushes interest rates down, which has the effect of appreciating the currency on the forex market. 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 measured by the level of the total money supply of a specific currency, for example the US dollar, which is constantly increasing. However, an increase in the money supply does not necessarily mean that there is inflation. What leads to inflation is a faster increase in the money supply in relation to the wealth produced (measured with GDP). As such, this generates pressure of demand on a supply that does not increase at the same rate. The consumer price index then increases, generating inflation.How Does Inflation Affect Forex?The level of inflation has a direct impact on the exchange rate between two currencies on several levels.This includes purchasing power parity, which attempts to compare different purchasing powers of each country according to the general price level. In doing so, this makes it possible to determine the country with the most expensive cost of living.The currency with the higher inflation rate consequently loses value and depreciates, while the currency with the lower inflation rate appreciates on the forex market.Interest rates are also impacted. Inflation rates that are too high push interest rates up, which has the effect of depreciating the currency on foreign exchange. Conversely, inflation that is too low (or deflation) pushes interest rates down, which has the effect of appreciating the currency on the forex market. Read this Term