In May, the RBA raised the cash rate by 25 bps to 4.35% then signaled that they would be pausing here.
As a reminder, the central bank has been one of the early movers in having raised interest rates since February. So far this year, they have delivered 75 bps of rate hikes.
The decision there was not solely tied to Middle East developments, as inflation pressures had been relatively stubborn in Australia.
So, the surge in oil and gas prices after just adds to the mix and reaffirms their decision to tighten policy further in recent months.
But after three consecutive decisions in raising the cash rate, they are due for a pause this month. The signal from the May decision was this statement passage:
“Having raised the cash rate three times, monetary policy is well placed to respond to developments and the Board is focused on its mandate to deliver price stability and full employment.”
Markets are also not pricing for any short-term changes by the RBA currently. And that view is reinforced by the US-Iran framework agreement this week. That sits well with the RBA baseline forecast that “the conflict is resolved soon and fuel prices are to decline”.
The odds of a rate hike are closer to a coin flip only by the time we get to November/December. So, expect the decision today to be more or less a non-event.
