Australian shares set for muted open. Reserve Bank poised to lift rates with statement at 2.30pm AEST. Iron ore, bitcoin rise. Follow updates here.
Policymakers at the Reserve Bank meet on Tuesday and strategists expect a decision to lift interest rates. Here are some expectations:: “We see the RBA lifting rates by 25 basis points to 0.60 per cent. The RBA’s guidance for rates in May set up a string of ‘business as usual’ 25bp rises in our view, and there has been nothing in the data flow since May to wrest them from the outlook painted at that time.
NAB also said “the risk of greater front loading of the hike cycle is clear given upside risks to the inflation outlook and the US Fed, RBNZ and [Bank of Canada] have all moved by 50bp increments recently.”: “We expect a much faster RBA hiking cycle now that the challenge of addressing the surge in inflation and expectations is clear. We see the RBA hiking the target cash rate by 50bp in June, July and August each to 1.85 per cent. Energy and food prices look set to rise much further.
“Global central banks are moving aggressively, and arguments that Australia’s inflation experience is different to the rest of the world are not persuasive. If anything, there should be more of a concern that getting rates closer to more normal levels will not help the clear strains now apparent in local energy markets in the near term. RBA forecasts for inflation and wages should continue to rise.
“Three 50bp hikes in a row might look aggressive, but we are looking for rates just to get towards neutral sooner and the level will remain low by historical standards. Even if the RBA ends up doing some 25bp steps, we do not see a reason why rates should not be closer to 2.5 per cent by the yearend.”: “The risks to inflation lean towards the upside and we expect the RBA to hike by 40bps to address this.
“A 25bps move would also be consistent with the board, as noted in the minutes to the May policy meeting, ‘returning to normal operating procedures [of 25 bps moves] after the extraordinary period of the pandemic’. If the RBA did not see reason to hike rates by 40bps in May, it seems strange for it to suddenly see the need to hike by that amount in June.”
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