RBA caught markets off-guard in June – UOB

Lee Sue Ann, Economist at UOB Group, assesses the latest RBA event.

Key Takeaways

“The Reserve Bank of Australia (RBA) announced a bigger-than-expected increase in the cash rate target by 50bps to 0.85%. It also increased the interest rate on Exchange Settlement balances by 50bps to 0.75%. Once again, the RBA cited strong inflationary pressures and a resilient economy.”

“The RBA has now embarked on a more aggressive front-loading hiking cycle. Today’s move more than fully unwinds the emergency rate cuts that took place in 2020 amid the COVID-19 pandemic, and it is also the first rate hike under new Prime Minister Anthony Albanese.”

“We continue to expect a series of rate hikes over the coming months. We now see the RBA hiking by another 90bps in the remainder of 2022 to bring the cash rate target to 1.75% by year-end (compared to 1.25% previously), before continuing to rise more gradually over 2023. We retain the same peak of 2.50%, but now expect this to be reached sooner (around mid-2023) than previously forecast (around end-2023).”