RBA interest rate decision preview: Don't write off a 50 bps rate hike

Mon 06 Jun 22, 4:09pm (AEST)
RBA - Reserve bank of Australia silver text on the black stone wall in front of its office building in Sydney central business district
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Key Points

  • Consensus expects a 25 bps rate hike to bring the official cash rate to 0.6%
  • Bank of America analysts expect the RBA to move faster and lay down a 50 bps hike
  • Factors driving a more hawkish RBA include price pressures, wage traction and the election now out of the way

The Reserve Bank is forecast to raise interest rates by 25 basis points on Tuesday, further tightening financial conditions to reign in inflation.

Consensus expects a 25 bps rate hike, but 50 bps should not be ruled out.

The interest rate decision will be made at 2:30 pm on Tuesday, 7 June.

Front-loading with larger steps

Analysts at Bank of America (BofA) said that the March quarter GDP data released last week will have more relevance for the RBA board meeting than expected. 

“Economic momentum was robust despite disruptions from lockdown and floods, and even a big detraction from net exports was due to the strength of import demand,” said the bank.

“It was evidence of a clear shift in price pressures and traction for wages that highlights the RBA will have to move into a faster phase of tightening with the election now out of the way.”

BofA expect the RBA to shift to a more hawkish stance, with “three consecutive 50 bps hikes starting at the June board meeting and followed by 25 bps in September and November”, bringing the cash rate to 2.35% by year-end.

2022-06-06 15 46 27-FUg4P1NXEAYU7P- (925×809)
Source: Bank of America Global Research, Bloomberg

How will the ASX react?

The 25 bps rate hike in May was widely unexpected.

The initial response?

The S&P/ASX 200 dipped -0.5% within a few minutes and the Australian dollar spiked.

2022-05-03 14 59 23-S&P ASX 200 (LIVE DATA) Share Prices & Charts - Market Index
ASX 200 Intraday Chart (Tuesday, 3 May 2022)

Keep an eye out for banks

The Commonwealth Bank of Australia (ASX: CBA) immediately passed on the 0.25% interest rate hike to all variable home loans. The rest of the big four banks followed suite.

Written By

Kerry Sun

Finance Writer & Social Media

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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