We expect a hawkish hold from the RBA Monetary Policy Board (MPB) next Tuesday.
The Board is likely to reiterate both that inflation is likely to remain high for some time - backed up by refreshed forecasts - and it will increase the cash rate target further if necessary.
The case to keep the cash rate unchanged rests on the Board’s view that it is already a “bit” restrictive, that labour market conditions have eased a bit faster than expected in May, and that weaker housing markets pose downside risks to economic activity.
Our view too is that the Board has a bit of time on its side to get a better feel for the macro landscape. Market pricing sees next to no chance of a rate hike next week.
But there remains a nagging case to get the cash rate to a higher level.
