The Reserve Bank of Australia’s (RBA) monetary policy board lifted the cash rate by 25 basis points to 3.35 per cent on Tuesday (7 February) — the highest since September 2012.
Markets were bracing for the hike as the central bank pursues its tightening strategy in an effort to return inflation to its target range of 2 to 3 per cent.
Upon confirmation of the hike, equity investors pulled funds from the S&P/ASX 200 Index, which fell 0.77 per cent from a daily high of 7,553.6 to a low of 7,495.2 index points.
The index closed at 7,497.7, down 0.55 per cent from 7,539 as at the close of trading on Monday, 6 February.
Major retailers like Wesfarmers (1.74 per cent) and JB Hi-Fi (1.66 per cent) took notable hits, with the higher interest rate environment tipped to further constrain consumer spending.
According to the Australian Bureau of Statistics’ (ABS) retail sales figures for December 2022, spending fell 3.9 per cent month-on-month — far exceeding market expectations of a 0.2 per cent fall.
The surprise dip was spurred by subdued spending across discretionary goods categories — led by a drop in retail sales across department stores (14.3 per cent); clothing, footwear, and personal accessories (13.1 per cent); and household goods (7.8 per cent).
The share prices of Woolworths and Coles Group also took a hit following the RBA decision, down 1.45 per cent and 1.16 per cent, respectively.
Among Australia’s big four banks, ANZ was the only lender to record share price growth (up 0.16 per cent), while Westpac’s share price took the biggest hit (down 0.67 per cent).
The RBA is projected to continue tightening monetary policy over the coming months, with its post-meeting statement noting it expects “further increases in interest rates will be needed” to achieve its inflation target.
