+50bp rate hike expected from the RBA at its next meeting on August 2

In its report today on its Westpac leading index (June)

WPAC reiterate its Reserve Bank of Australia view:

  • For some time, we have been predicting that the Board will opt for a fourth successive rate rise and a third successive cash rate increase of 50bps.

Analysts at the bank expand on this:

  • This marks a rapid re-tightening in policy. In 1994 the Board decided to increase the cash rate by 275bps in three meetings (spaced over five months) with two moves of 100bps and one of 75bps. Aside from that episode and a single 50bp increase during the 1999-2000 tightening, the current cycle is the first time the cash rate has been lifted by 50bps or higher since 1990.
  • The Board has indicated in the Minutes of the July meeting that “the level of interest rates was still very low for an economy with a tight labour market and facing a period of higher inflation.”
  • The Board will still have four more meetings this year to reach its target cash rate without needing to revert to the more aggressive policies we have seen overseas from central banks that have a more limited number of meetings and economies that are less sensitive to the central bank’s policy rate.

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