TD Securities strategists Prashant Newnaha and Alex Loo have highlighted that the Reserve Bank of Australia (RBA) raised its cash rate by 25 basis points to 4.35% in an 8-1 vote, aligning with market expectations. Despite this rate hike, the RBA's messaging was described as dovish, with the central bank indicating a more balanced view of risks to both inflation and economic growth, and signaling a potential near-term pause in further rate increases [1].
However, TD Securities now anticipates that the RBA will implement a final 25 basis point hike in August, bringing the cash rate to 4.60%. This expectation is contingent upon the Q2 trimmed mean Consumer Price Index (CPI) exceeding the RBA’s forecast and inflation remaining persistent. The strategists note that the RBA's own forecasts assume another 25 basis point hike in the third quarter, and that the timing of the next move will depend on where inflation data lands [1].
The report also points out that the RBA appears hesitant to hike rates in June, making August the most likely month for the next increase. TD Securities had previously discussed the possibility of the cash rate reaching 4.60% in this cycle, and now considers this outcome increasingly likely given current inflation dynamics and the RBA's cautious approach [1].
CONCLUSION
The RBA has raised its cash rate to 4.35% with a dovish tone, but TD Securities expects a further hike to 4.60% in August if inflation data remains elevated. Market participants should closely monitor Q2 CPI figures, as these will be pivotal in determining the RBA's next move.