Next week, the Reserve Bank of Australia will announce its decision on monetary policy. After GDP data on Wednesday, economists at ANZ Bank shifted their expectations and now see the RBA raising the cash rate by 40 basis points at the June meeting.
Key Quotes:
“From a policy perspective, there were two critical elements of the Q1 national accounts data. The first was the strong growth in average hourly earnings, calculated by the RBA as up 5.2% y/y. The second was that the broadest measure of consumer inflation (the household consumption deflator) had its highest quarterly increase since 1990 (outside the GST).”
“These suggest policy needs to lean more strongly against the broadening of inflation pressures. We think the strength of the price and wage measures in the GDP data should be enough to convince Governor Lowe that, “there is a very strong argument” to deviate from a regular 25bp move and lift the cash rate a bit, a little faster.”
“The RBA could confound us all and decide to go by 50bp, but we think the fact a 40bp move was discussed in May makes it a more likely choice. More than 50bp seems unlikely given that the RBA meets monthly. We can’t rule out the RBA sticking with a cautious approach and tightening by 25bp, but with policy still exceptionally stimulatory we think a bigger move of 40bp is more likely.”
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