AUSTRALIA: RBA UNEXPECTEDLY HIKES RATES BY 25 BPS – UOB

Economist at UOB Group Lee Sue Ann reviews the latest interest rate decision by the RBA (June 6).

Key Takeaways

Today’s decision by the Reserve Bank of Australia (RBA) to increase the cash rate target by 25bps to 4.10% once again came as a surprise. In justifying the increase, the RBA repeated that ‘inflation in Australia has passed its peak, but at 7 per cent is still too high and it will be some time yet before it is back in the target range’.

The back-to-back surprise from the RBA reinforces our view that it remains in a difficult balancing spot of managing inflation without slowing the economy too much.  In this regard, tomorrow (7 Jun)’s GDP figures for 1Q23 will be keenly awaited.

Every meeting in the near term will be live, and very dependent on incoming economic data. The next monetary policy is on 4 Jul, where we see a pause at 4.10%. We think that even if the RBA were to move its cash rate target just a little higher, it is likely to hold off until Aug, when it will have the benefit of the full 2Q22 CPI data release on 26 Jul.