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FIVE at FIVE AU: Mining lifts ASX; RBA minutes suggest further rate hikes

Published 21/11/2023, 03:50 pm
© Reuters.  FIVE at FIVE AU: Mining lifts ASX; RBA minutes suggest further rate hikes
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Strong mining sector gains lifted the ASX higher today.

The S&P/ASX200 gained 22.90 points or 0.32% to 7,081.30. Over the last five days, the index has gained 1.06%, but is virtually unchanged over the last year to date.

The top-performing stocks in this index are Weebit Nano and Pexa group Ltd, up 5.88% and 5.10% respectively.

Materials is the best-performing sector up 1.44%. Utilities was the worst performed, losing 1.67%.

Hawkish RBA minutes raise concerns

All eyes today were on the Reserve Bank of Australia’s minutes.

UBS economists expect interest rates to remain higher for longer, with the possibility of one to two more rate hikes to come.

UBS economist George Tharenou noted booming third-quarter superannuation benefits (near record highs of $29 billion) that are boosting older household income and underpinning consumption.

Households that are less sensitive to rate hikes are failing to crimp consumer demand.

Population growth is also an issue.

UBS sees the cash rate staying at 4.35% for about the next 12 months but with the risk of a 25 basis point hike in February.

ANZ senior economist Blair Chapman also sees a potential rate hike in February.

"With the next quarterly CPI release not until late January and the most recent wage and labour force data impacted by temporary factors, our view is that the RBA will wait until February before considering hiking again, with additional data informing an updated set of forecasts to be presented to the Board at that meeting," Chapman said.

"We continue to expect the cash rate to remain at 4.35%, although, risks remain tilted to the upside."

The RBA hiked the rate to its current level to reduce the risk of a “larger monetary policy response” in the coming months.

It cited the persistence of inflation and the stronger-than-expected performance of the economy for its decision.

There could be more pain for mortgage holders as it noted that its forecasts for inflation to decline to within its 2%-3% target range by the end of 2025 were based on one or possibly two more interest rate increases.

“Members noted that the risk of not achieving the board’s inflation target by the end of 2025 had increased and that it was appropriate that monetary policy should be adjusted to mitigate this,” the minutes showed.

“They agreed there was a risk of inflation expectations increasing [if the pause had been extended] particularly given the Board’s repeated statements that it has a low tolerance for inflation returning to target after 2025.”

Markets changed little after the minutes were released with investors having already factored in the central bank’s position.

Inflation remains problematic.

RBA governor Michelle Bulllock told the Australian Securities and Investments Commission conference in Melbourne, “There’s a bit of a perception that the inflation at the moment is all a supply-driven thing.

“If there’s this underlying demand component to it as well, that is actually something that central banks can do something about.”

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