Another central bank with a cycle of hikes | Conotoxia

Risks in the US Banking System: Potential Impacts and Contagion Concerns

The Reserve Bank of Australia has joined the ranks of central banks that are trying to control rising inflation by raising interest rates. A cycle of hikes has already been initiated by the following, among others: Federal Reserve, Bank of England, Bank of Switzerland, and soon the European Central Bank will also join the ranks.

The Reserve Bank of Australia raised the spot rate by 50 basis points to 0.85 percent at its June 2022 meeting. The action could start Australia's first cycle of interest rate hikes in 12 years. The central bank's board said that massive monetary support is no longer needed due to the strength of the economy and current inflationary pressures. In addition, the labor market is strong as employment has increased and the unemployment rate was the lowest in nearly 50 years. Policymakers cautioned that further monetary tightening is on the agenda and the extent and timing will depend on incoming data and the Board's views on the outlook for inflation and the labor market, according to the RBA meeting minutes released.

The committee reiterated its determination to do whatever is necessary to ensure inflation returns to target while noting the global outlook remains shaken by the war in Ukraine and its impact on energy and commodity prices. The RBA's actions may also prevent the Australian dollar from weakening too much, which could further import inflation. The AUD has lost 4.3 percent to the USD since the start of the year, one of the smaller losses of the world's major currencies. By comparison, the Japanese yen has weakened by almost 15 percent.

Staying with the yen and monetary policy, the Bank of Japan remains the last of the world's major banks not to raise interest rates for now. However, the most interesting situation there is in the bond market, where the BoJ is defending the market against rising bond yields at all costs. The maximum level that is allowed is 0.25 percent on 10-year bonds. Thus, the number of institutions that want to play to break the Bank of Japan is growing. If this were to happen, the yen could definitely strengthen.


Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Conotoxia investment service)

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Another central bank with a cycle of hikes (conotoxia.com)

Risks in the US Banking System: Potential Impacts and Contagion Concerns

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