A Rate Hike by the Reserve Bank of Australia Causes the Australian Market to Fall

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The Australian market fell sharply on Tuesday, with the Reserve Bank of Australia’s decision to raise its benchmark interest rate causing a sell-off in the stock markets.

The Reserve Bank of Australia lifted the cash rate for the eighth time this year. Economists and investors widely expected the increase, but markets still reacted with a sell-off, leading to a sharp decline in stock prices across the board.

Tuesday’s market sell-off appears mainly caused by uncertainty surrounding potential global economic risks such as Brexit or US-China trade tensions. Nonetheless, investors should keep a close eye on further developments from the RBA over the coming months, as more rate hikes may be necessary if inflation continues its upward trajectory into 2019.

The S&P/ASX 200 index ended down 34.30 points, or 0.47%, to 7,291.30. The broader All Ordinaries dropped 40.1 points, or 0.53%, to 7,487.70.

The Australian Bureau of Statistics (ABS) released data on Tuesday showing that consumer spending had climbed 20.7% from the previous period. This is the most significant increase in consumer spending since January 2018 and marks a considerable improvement over recent months, particularly for retailers.

The Australian dollar was up 0.24% at $0.6722 against the US dollar on Tuesday, following the Reserve Bank of Australia’s decision to raise its benchmark interest rate. This is due to a combination of factors, such as investors’ expectations that a robust Australian economy will benefit from higher global economic growth and an improved outlook for commodity prices.

Eliza Owen, head of research for property consultancy CoreLogic Inc. said, “The higher rate environment will test housing market conditions in 2023.”

In its latest bid to manage growing inflationary pressures, the Reserve Bank of Australia lifted the cash rate by 0.25 of a percentage point to 3.1%.

The latest figures show that exports remain strong, with Australia receiving large amounts of capital inflows from overseas investors attracted by its robust economy and favourable exchange rates.

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