RBA surprise spooks ASX investors

A SHOCK interest rate decision on Tuesday sent the Australian dollar soaring but equity investors were scurrying for the stands.

The benchmark ASX 200 was drifting along in neutral in the lead up to the Reserve Bank’s 2.30pm interest rate decision, with a 15 basis point hike largely priced in.

But governor Philip Lowe and his board kicked off a round of selling when he unveiled a steeper-than expected 25 basis point hike to 0.35 per cent, also warning investors that further rises were likely in the coming months.

The local bourse immediately lost 0.6 per cent from a flat position to bottom out at 7299.3 before recovering some ground to close at 7316.2 points, down 0.42 per cent.

In the banking sector,

Westpac rose 0.1 per cent to $23.90 but Commonwealth Bank fell 0.7 per cent to $102.26, NAB dropped 0.65 per cent $32.11, and ANZ eased 0.15 per to $27.26. The Australian dollar bounced from US70.88c to a peak of almost US71.5c before easing again.

City Index analyst Tony Sycamore said while the RBA would have preferred to stay on the sidelines until after the May 21 federal election, Tuesday’s hike recognised that waiting longer would make it more difficult to tame inflation without sending the economy into recession.

Saxo Markets Australia analysts Jessica Amir and Redmond Wong said markets now expect another eight rate hikes before the year is out, a scenario that could take the cash rate to 2.8 per cent by the year end. “But we think rates will rise further than that, given what happened today, plus many companies are forecasting inflation and supply shocks will linger this year,” the pair added.

Stocks that traditionally suffer from higher rates were sold down, including real estate trusts. Shopping mall landlord Scentre Group fell 1.7 per cent to $2.86 while Mirvac lost 0.8 per cent to $2.36, Goodman Group fell 1.5 per cent to $21.93 and National Storage lost 2.8 per cent to $2.48.