For the second time in five weeks the Australian sharemarket wilted in the face of a big interest rate hike, with Tuesday’s 50 basis point move from the Reserve Bank clearly more than investors had been banking on.
The benchmark ASX 200 was already struggling for traction before Governor Philip Lowe revealed a surprisingly hawkish pivot and hiked the target cash rate from 0.35 per cent to 0.85 per cent.
The afternoon statement sent the index tumbling by 1.7 per cent to a more-than two week low of 7082.2, with rate-sensitive tech, real estate and payments firms predictably copping a beating.
The ASX 200 recovered somewhat after Lowe’s bolt from the blue but still finished deeply in the red, losing 110.6 points, or 1.5 per cent, to close at 7095.7.
The broader All Ordinaries fell 114.5 points, or 1.5 per cent, to 7318.6, while the Aussie dollar eased to 71.73 US cents after momentarily spiking to 72.26 US cents when the hike was announced.
Growth firms such as Afterpay owner Block Inc dropped 2.9 per cent to $112.60, while buy now, pay later rival Zip Co was 14.4 per cent lower at 65.5 cents.
Xero finished 5 per cent lower at $80.19 and Wisetech Global 5.3 per cent down at $39.74.
Among property names, there were falls of between 2.3 per cent and 3.7 per cent each for Scentre, Mirvac, Goodman Group, Vicinity Centres, Stockland, Lendlease, Dexus, Charter Hall and GPT Group.
A back-to-back rate hike was widely expected on Tuesday but few entertained the thought that Dr Lowe would announce 50 basis points – the biggest single lift since the year 2000.
In his monthly statement, Dr Lowe said he believed the Australian economy was strong enough to withstand higher interest rates after nearly 18 months of emergency monetary settings.
He acknowledged the need to rein in surging inflation as the key reason for the rise, and admitted to Australians that higher electricity and gas prices and recent increases in petrol would likely continue in the near term.
However: “Today’s increase in interest rates will assist with the return of inflation to target over time.”
The prospect of higher rates is often taken by equity investors as a sign company profits will sag as people curb their spending to offset higher lending expenses.
Bigger borrowing costs are particularly harsh for companies valued for their future growth, or those exposed to fluctuations in real estate prices.
City Index analyst Tony Sycamore said the RBA’s move on Tuesday paved the way for a follow up 50 basis point hike in July as the size of the increase becomes the “new normal” in line with the US Fed, the RBNZ and the Bank of Canada.
“As we have noted previously, the central bank fraternity talks frequently among themselves,” Mr Sycamore said.
“When one starts singing from the hymn sheet, others will often follow.”
Wall Street had already set the stage for an underwhelming session for local stocks before the rate rise sent everything lower.
NAB was the worst of the major banks, dropping 3.3 per cent to $30.10, while Commonwealth Bank was 2.6 per cent lower at $101.96, ANZ shed 1.5 per cent to $24.45, Westpac finished 2.1 per cent down at $23.41 and Macquarie Group dropped 3 per cent to $177.49.
Rio Tinto was a rare gainer, adding 0.7 per cent to $116.55, but fellow miner BHP lost 0.1 per cent to $46.30 and Fortescue Metals ended the day 1.1 per cent lower at $21.16.
Woolworths lost 2 per cent to $34.12, Wesfarmers fell 3.9 per cent to $45.58, CSL was 1.2 per cent down at $267.6 and Telstra lost 1.3 per cent to $3.84.