Westpac's note on their leading index published today contains their view on the June 7 RBA monetary policy meeting:
- Westpac expects that the Board will decide to raise the cash rate by a further 40bps to 0.75%. Most analysts favour a more cautious move of 25bps. Following the increase of 25bps in May the move would unwind the emergency rate cuts that the Bank enacted during 2020 when the economy faced the COVID crisis.
- With the crisis having passed and the Bank challenged with the daunting task of bringing underlying inflation down from a forecast 4.75% to 3.25% in 2023 that emergency stimulus is no longer appropriate.
- The Board will also be aware of the efforts of other central banks, including the US Federal Reserve, to quickly move interest rate settings back to neutral. While current headline inflation in Australia is below these other countries, the RBA has started more slowly than central banks abroad and inflation pressures are still increasing.
- It is also much more prudent to front-load the increases where at a stage in the cycle when rates are clearly below what might be considered a ‘neutral’ level.
Coming up very soon (at 0130 GMT) are key wages data that will be eyed by the RBA:
In the graph above is from the RBA website - it shows the May rate hike, and yes it is very difficult to see. The cash rate was lifted from 0.1% to 0.35%.
