RBA: One final 25 bps hike in Sep, taking the cash rate to 4.85% – TDS

Last week's Australian labour market release for the month of May smashed market forecasts. Subsequently, economists at TD Securities now expect the RBA to hike in July and retain the August hike.

4.85% terminal, upside risk

The red-hot Australian labour market poses the threat that inflation expectations become unanchored given weak productivity and upside risks to the RBA's wages forecasts. TD now expects the RBA to hike the target cash rate by 25 bps at its July meeting.

Q2 CPI to be released on 26th July is likely to show trimmed and services inflation remains elevated. Hence, we retain our call for a 25 bps RBA hike in August. This would take the cash rate to 4.60%.

We pencil in one final 25 bps hike in Sep, taking the cash rate to 4.85%. Whether the RBA takes the cash rate above 5% will be dependent on how quickly the stock of excess savings is run down.