CBA note that “on balance, we favour a 50bp hike in July. The RBA now appears intent on front loading the tightening cycle despite the Governor stating in his 21 June speech that, “I want to emphasise though that we are not on a pre‑set path.” The market prefers consistency in policy communication and action. That does not mean the market requires forward guidance. Indeed maintaining rigid forward guidance when the facts change is very much want the market does not like. However, it does not make sense to chop and change between a series of 25bp and 50bp hikes over coming months. Indeed we believe that once the RBA drops back to a ‘business as usual’ 25bp rate hike at any near term monthly Board meeting the probability of then delivering a larger 50bp hike at a future meetings in this tightening cycle would be very low. Put another way, a potential sequence of rate hikes of 25bp in May, 50bp in June, 25bp in July and 50bp in August would be unwelcome. It is much better to move by 50bp in July and make a judgement around 25bp or 50bp in August based on the evolution of the data and the outlook for both inflation and the economy.”
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