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RPT-🏦🇦🇺Cable FX Macro Weekly Note: RBA Cash Rate Decision

**As seen in Risk In The Week report 06/02/23, subscribe at

The RBA resumed its tightening campaign in May as it lifted the Cash Rate target by 25 basis points to 3.85%, March saw the last hike prior to this one. The central bank said that further tightening might be required and that the decision to hike would help anchor inflation expectations. The market reaction saw the Australian dollar rise along with yields, this showed the decision to raise rates was not fully priced in. Quarterly consumer prices ticked at 7.0% Y/y in Q1, the latest monthly print rebounded to 6.8% Y/y in April from a prior 6.3%. We remind you that the board sees CPI easing to 4.50% in 2023 and to 3.25% in 2024. More recently, we had the Australian government budget and the FWC decision on wages. On a balanced view, the developments do not support the case for much slower inflation ahead. In fact, the desk at ANZ just lifted its RBA terminal rate forecast to 4.35% from 4.10%, RBC revised its previous 3.85% call to 4.35%. RBC said that optics will be poor if the central bank decides to hike this week following the wage decision, if the RBA skips a June move, they would expect rate hikes coming in both July and August. The minimum wage was increased by 5.75% on Friday, while this is still below the inflation rate, it adds to an already challenging labour cost picture and would certainly keep the RBA in check for guidance.



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