Another rate rise, but it's not over yet

The cash rate has hit its highest peak since 2012 following the RBA’s decision this afternoon to raise it by a further 25 basis points.

This will raise interest rates a further 0.25 percent to 3.6 percent, as predicted by most economists and the major banks earlier today. It marks the 10th consecutive rise since May 2022 and places the cash rate at 105 basis points above the pre-COVID decade average of 2.55 percent. For borrowers with a $500,000 mortgage, that adds about $160 more each month to repayments.

Despite concerns expressed by various sectors of the community regarding the impacts of further pressure on household incomes, the Reserve Bank’s statement cited an ongoing commitment to driving down inflation as an influence on its decision.

“The Board’s priority is to return inflation to target,” the board said. “High inflation makes life difficult for people and damages the functioning of the economy. And if high inflation were to become entrenched in people’s expectations, it would be very costly to reduce later, involving even higher interest rates and a larger rise in unemployment.

“The Board is seeking to return inflation to the 2–3 per cent target range while keeping the economy on an even keel, but the path to achieving a soft landing remains a narrow one.”

Responding to criticism from some quarters that the full effects of consecutive rate rises over the past 10 months has yet to be quantified, the board said it recognised that “monetary policy operates with a lag and that the full effect of the cumulative increase in interest rates is yet to be felt in mortgage payments” and that some households would be feeling the pinch more than others.

“Some households have substantial savings buffers, but others are experiencing a painful squeeze on their budgets due to higher interest rates and the increase in the cost of living,” it said.

Indicating that further rate rises could be on the way, the board said ‘further tightening of monetary policy will be needed’.

“The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that.”

The RBA is next due to meet on April 4.

China’s securities regulator is ramping up support for the country’s embattled equities markets, announcing measures to funnel capital into Chinese stocks.

The aim: to draw in more medium to long-term investment from major funds and insurers and steady the equities market.

The latest round of policy boosts comes as Chinese stocks start the year on a soft note, with investors reluctant to add exposure to the market amid lingering economic woes at home and worries about potential tariffs by U.S. President Trump. Sharply higher tariffs on Chinese exports would threaten what has been one of the sole bright spots for the economy over the past year.

Thursday’s announcement builds on a raft of support from regulators and the central bank, as officials vow to get the economy back on track and markets humming again.

State-owned insurers and mutual funds are expected to play a pivotal role in the process of stabilizing the stock market, financial regulators led by the China Securities Regulatory Commission and the Ministry of Finance said at a press briefing.

Insurers will be encouraged to invest 30% of their annual premiums earning from new policies into China’s A-shares market, said Xiao Yuanqi, vice minister at the National Financial Regulatory Administration.

At least 100 billion yuan, equivalent to $13.75 billion, of insurance funds will be invested in stocks in a pilot program in the first six months of the year, the regulators said. Half of that amount is due to be approved before the Lunar New Year holiday starting next week.

China’s central bank chimed in with some support for the stock market too, saying at the press conference that it will continue to lower requirements for companies to get loans for stock buybacks. It will also increase the scale of liquidity tools to support stock buyback “at the proper time.”

That comes after People’s Bank of China in October announced a program aiming to inject around 800 billion yuan into the stock market, including a relending program for financial firms to borrow from the PBOC to acquire shares.

Thursday’s news helped buoy benchmark indexes in mainland China, with insurance stocks leading the gains. The Shanghai Composite Index was up 1.0% at the midday break, extending opening gains. Among insurers, Ping An Insurance advanced 3.1% and China Pacific Insurance added 3.0%.

Kai Wang, Asia equity market strategist at Morningstar, thinks the latest moves could encourage investment in some of China’s bigger listed companies.

“Funds could end up increasing positions towards less volatile, larger domestic companies. This could end up benefiting some of the large-cap names we cover such as [Kweichow] Moutai or high-dividend stocks,” Wang said.

Shares in Moutai, China’s most valuable liquor brand, were last trading flat.

The moves build on past efforts to inject more liquidity into the market and encourage investment flows.

Earlier this month, the country’s securities regulator said it will work with PBOC to enhance the effectiveness of monetary policy tools and strengthen market-stabilization mechanisms. That followed a slew of other measures introduced last year, including the relaxation of investment restrictions to draw in more foreign participation in the A-share market.

So far, the measures have had some positive effects on equities, but analysts say more stimulus is needed to revive investor confidence in the economy.

Prior enthusiasm for support measures has hardly been enduring, with confidence easily shaken by weak economic data or disappointment over a lack of details on stimulus pledges. It remains to be seen how long the latest market cheer will last.

Mainland markets will be closed for the Lunar New Year holiday from Jan. 28 to Feb. 4.

Another rate rise, but it’s not over yet

The RBA is resolute in its task to bring inflation under control

The latest round of policy boosts comes as stocks start the year on a soft note