Reserve Bank of Australia hikes by 25 basis points

The Reserve Bank of Australia (RBA) has hiked rates by an expected 25 basis points, lifting its official cash rate to 2.6%, with the RBA governor warning that the central bank expects to increase interest rates further in the foreseeable period.

The S&P/NZX 50 index rose 130.6 points, or 1.2%, to 11,090.03 following a US rally overnight. Turnover was $120.5 million.

Governor Philip Lowe said in this afternoon’s monetary policy statement that the further increase in interest rates would help achieve a more sustainable balance of demand and supply in the Australian economy.

“As is the case in most countries, inflation in Australia is too high,” he said.

“A further increase in inflation is expected over the months ahead, before inflation then declines back towards the 2% to 3% range.”

The Australian dollar lifted to 64.84 US cents at 5pm Wellington, after hovering around the 64.75 US cent mark just before the RBA’s announcement was made. 

The NZ dollar jumped up slightly against the AUD to 88.14 Australian cents by 5pm as well, up from 88.08 cents before the statement.

Devon Funds head of retail Greg Smith said while the market was expecting a 50-basis-point hike in Australia, the RBA was known for being more dovish, and the 25bp decision was a quite viable option.

“The RBA is probably standing out alone a little bit in the crowd at the moment as it's adopting quite a pragmatic view,” he said. 

“But it’s not inconsistent with their minutes from their last meeting where they said they weren't on a predestined path.”

On the stock market front, Smith said although there was little corporate news released, NZ’s market was up by more than 1% due to US markets rallying overnight. 

He said September had the steepest declines for markets since March 2020 – with it also being the worst September in two decades – but October would hopefully be more positive.

The first medicinal cannabis company to list on the NZX told the market this morning that it had received its first shipment of verified cannabis medicines.

Cannasouth’s chief executive Mark Lucas said the establishment of the supply chain for its first medicines means Cannasouth is now generating revenue from the sale of medicines in NZ.

“The differentiated formulations of our products will provide New Zealand patients and prescribers with new treatment options compared to existing products on the New Zealand market,” he said.

Cannasouth was up 4.9% to 32 cents, while Rua Bioscience was flat at 23 cents and Greenfern Industries fell 7.1% to 11.8 cents.

Auto retailer and financier Turners announced a fully imputed dividend of 5 cents per share (cps) to be paid on Oct 27. The stock was up 1.9% to $3.67.

Electronic components design and manufacturing firm Rakon was one of the bigger gainers on the index today, up 6% to $1.23.

Property stocks edged up after falling down the index yesterday. Notably, Kiwi Property Group rose 5.7% to 93 cents, Vital Healthcare Property Trust was up 2.9% to $2.50, and Goodman Property edged up 2.5% to $2.04.

Fleet management company Eroad fell 5.1% to $1.49.

‘We get it’

Overnight, the UK hit the financial headlines again after Kwasi Kwarteng, the chancellor of the Exchequer announced – via Twitter – that the UK government had decided to scrap its plan to remove the top 45% tax rate.

“We get it, and we have listened,” Kwarteng tweeted on Monday night. In his statement, he said it was clear that the abolition of the 45% tax rate had “become a distraction” from the new government’s mission to tackle the challenges facing the country.

Kiwibank financial traders said in a note this morning that the tax reversal saw the pound move higher overnight, with it rising 1.5% against the US dollar early this morning, reaching $1.1331.

Thanks to the US dollar weakening overnight, ASB’s Chris Tennent-Brown said this morning that the NZ dollar had surged over 2% higher against the greenback and climbed above the 57 cents level this morning.

At 3pm today, the kiwi was still trading around the 57 cents mark at 57.14 US cents, up from 56.25 cents on Monday.

The Reserve Bank of NZ makes its next rate move tomorrow afternoon, with the likelihood of the official cash rate being lifted by another 50 basis points to 3.5%.