Overview

In light of the RBA’s 50bp June rate rise and newly revealed preference to quickly normalise policy – as well as expected high inflation prints in Q2 and Q3 – we have revised up our cash rate profile. We expect additional 50bp rises in July and August to take the target to 1.85%, with a further 25bp November rise to 2.10% by year-end.

• Yesterday’s rate increase to 0.85% came on the back of robust Q1 GDP growth data, a low unemployment rate, and further signs that inflation will remain elevated. We see unemployment falling further below 4% in coming months and now expect trimmed mean inflation to reach 5% y/y later in 2022.
• Importantly, the Board signalled it now intends to quickly withdraw the extraordinary monetary support provided during the pandemic. Given this approach, yesterday’s 50bp rise is unlikely to be a one-off as the Board seeks to shift the level of rates closer to the 2-2.5% range.
• From 2023, the pace of hikes is likely to slow as policy approaches neutral. We see two further 25bp increases in 2023, taking the target to 2.60% and remaining there, with our end 2024 forecast unchanged.

For further details, please see the NAB Monetary Policy Update – 8 June 2022