RBA’s hawkish stance spurs traders to boost bets on August hike

The Reserve Bank has put the world on alert that it may buck global trends by raising interest rates again, with policymakers delivering what the bond market judged to be the most hawkish shock in a year.

Money markets flipped to pricing a 20 per cent chance Australia’s central bank will raise rates at its next meeting in August after governor Michele Bullock said persistent inflation meant the board considered a hike, before deciding to keep borrowing costs unchanged on Tuesday.

Prior to the decision, traders were barely pricing any chance of a rate rise.

Three-year bond yields jumped after the release and remained there, the first time that’s happened on an RBA meeting day since last June, when the central bank sprung a surprise rate increase. Australia’s central bank is the only major monetary authority outside Japan seen as potentially delivering a hike at its next gathering.

“The risk of an RBA rate increase is still being under-priced,” said Sean Keane, chief strategist for Asia Pacific at JB Drax Honore.

“What was clear throughout the press conference was that the RBA are more concerned about inflation than they were at the last meeting, and the balance of risks have swung further towards the need for a further interest rate tightening.”

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