VIEW: ING: Larger Than 25bp Rate Hike Can’t Be Ruled Out

ING note that “before the RBA responded to the recent surge in inflation with a 25bp increase in the cash rate target, labour market data was scrutinized for signs that the central bank's dovish resolve would be challenged. Now that rates have already been raised, that is no longer the case. But labour market data is not irrelevant. Today's drop in the unemployment rate to a new record low, even alongside the relatively more subdued Q1 wage data released yesterday, raises questions about the pace of future hikes.”

• “The question worth pondering is this: Does it make sense to raise rates in 25bp increments when the inflation rate is so far above target, and so far above the level of policy rates? Or does it make more sense to front-run the early tightening?”
• “A number of other central banks in the Asia Pacific region are having the same internal conversation right now, having emerged from a similar period of dovishness assuming that most of the inflation spike would be transitory, or largely bypass their economies for various reasons. The consensus of these other central banks seems to be swinging behind a more rapid pace of withdrawal of accommodation, at least for a while. Rate hikes from the RBA in excess of 25bp in the near future can't be ruled out either.”