RBA: Data outcomes do not support the central bank pausing this year – TDS

On Tuesday, the Reserve Bank of Australia (RBA) will announce its decision on monetary policy. Market participants expect a 50 basis points rate hike. Analysts at TD Securities point out business confidence remains buoyant, capex plans are firm, labour market/capacity utilisation remains tight, the consumer continues to spend and price pressures are 'widespread'. They consider a rate hike from the RBA of less than 50bps would represent a loosening of financial conditions.

Key Quotes: 

“The data outcomes do not support the RBA pausing this year. Of most interest is how the Bank will telegraph ongoing hikes but signal a step down in the pace of hikes from October to 25bps increments. Reiterating the Bank is not on a 'pre-set path' would meet this objective.”

“A 50bps hike is consistent with prior RBA hikes and in line with firm data outcomes. Of more importance is the language accompanying a 50bps hike. Does the RBA strengthen its language/resolve to get on top of inflation by removing 'even keel' or 'path to achieve this balance is a narrow one and clouded in uncertainty'. Or does the RBA signal a more prolonged hiking cycle but highlights a step down in the pace of rate hikes? We favour the 2nd option.”