Australia: RBA could slower the pace of rate hikes – UOB

Economist at UOB Group Lee Sue Ann reviews the latest RBA event (August 2).

Key Takeaways

“The Reserve Bank of Australia (RBA) decided to increase the cash rate target by 50bps to 1.85%. It also increased the interest rate on Exchange Settlement balances by 50bps to 1.75%. This is the third consecutive month that the RBA has raised rates by 50bps, and at 1.85%, the cash rate is at its highest since Apr 2016.”

“For some time, though, we have been forecasting that the RBA will soon slow to 25bps increments. Today’s accompanying statement reinforces our view, with the RBA noting that “it is not on a preset path”. We see this as a tweak to its policy language, hinting a slower pace of rate hikes ahead. We still expect the RBA to hike in coming months but hikes are likely to be slower and shallower. Our forecast remains for the OCR to reach 2.10% by year-end, and for it to reach 2.50% by mid2023.”

“We acknowledge the uncertainty surrounding our forecasts and are mindful of the RBA’s desire to be data dependent as it closely monitors global and domestic developments. Attention will now turn to the quarterly release of the RBA’s Statement on Monetary Policy (SoMP) on Fri (5 Aug), followed by 2Q22 wage price index data on 17 Aug.”