Australian shares ended Tuesday nearly 1% higher led by heavyweight financials, after the central bank pushed back market expectations of a rate cut, warning that there were reasons to remain vigilant against inflation.
The S&P/ASX 200 index closed 1.01% higher at 7,778.1 points, its highest closing level in more than a week.
The Reserve Bank of Australia (RBA) at its monetary policy meeting kept its rates steady at 4.35% as widely expected and said that inflation was slowing down, albeit at a slower pace and still remained elevated.
Banks, which occupy about one-third of the benchmark index, tend to benefit in an high interest rate environment.
“The thorough inflation assessment highlighted by the RBA boldly suggests that a rate hike remains an option, with the risk of recession not yet considered as a hurdle to its monetary policy outlook,” said Hebe Chen, a market analyst at IG.
Majority of economists, 38 of the 43 polled by Reuters, have forecasted rates to remain unchanged next quarter, followed by a 25 basis point cut in the final quarter of this year.
“There is very little data to support RBA cutting anytime soon but they are likely to prepare the market for higher inflation to be ignored as transitory,” Mathan Somasundaram, CEO at Deep Data Analytics said.
Financials closed 1.6% higher after hitting a record high of 7,635.30 points in the buildup to the RBA decision.
The “Big Four” banks all gained between 0.9% and 1.9%, with financial conglomerate Macquarie Group adding 2.9%. Miners ended largely flat, with modest gains by iron ore behemoths BHP Group and Rio Tinto of up to 0.7% offset by Fortescue, which lost 5.6%.
Miners, financials drag Australia shares lower
Fortescue slumped to the bottom of the benchmark after a media report said an institutional investor had sold stake worth A$1.1 billion ($728.75 million) in the iron ore miner in a block trade. In New Zealand, the benchmark S&P/NZX 50 index was up 0.6% at 11,767.4 points.
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