📝Cable FX Macro Weekly Note: RBA Monetary Policy Decision

**As seen in Risk In The Week report 06/03/2022, subscribe at cablefxm.co.uk/reports

The RBA delivered its first rate hike since 2010, the Cash Rate was lifted by 25bps to 0.35%, this was larger than the consensus forecast of 10bps. The board said that inflation had picked up significantly more than what they expected, and that it would be necessary to lift rates further to meet the inflation target. They also noted that wage growth was picking up and expected a near-term rise in inflation. The RBA now project headline inflation at 6% In 2022, while underlying prices are seen at 4.75% by the end of the year, unemployment rate is expected to fall to 3.5% by mid-2023, and GDP is forecasted to grow at 4.25% in 2022. The survey compiled by Bloomberg sees the RBA lifting the Cash Rate by 40bps to 0.75% next week and to 1.25% by September. Barclays, NAB, and Scotiabank forecast the central bank moving by only 30bps, BofA and Goldman Sachs expect the RBA to lift by 50bps in the June meeting, the latter stands more hawkish than the consensus and sees the Cash Rate reaching 2.60% by end of the year. The desk at Westpac stands with the consensus view of 0.75%, they note that the RBA is likely to step up the pace of rate hikes as it tries to catch up with other central banks which have moved in a non-standard fashion (BoC 50bps, FOMC 50bps, RBNZ 50bps). Westpac says that larger increases at the beginning of the tightening cycle is good policy as the central bank knows that rates are well below neutral, this will also send a clear signal that the bank is committed to reach its inflation target and will have an impact in inflation expectations, they said. Keeping a neutral rate of 2%, inflation at 3.7%, and a target of 2.50%, the Taylor Rule Model sets a rate of 8.2%, this is a spread of 7.9% to the RBA’s Cash Rate. This means that the central bank is behind the curve by the most since the late 1970s. As many other developed market central banks, the RBA now has to play catch up with prices and non-standard moves are required. - Cable FX Macro