The RBA Board decided to raise the cash rate by 50 basis points at its meeting on June 7. In our latest preview on June 3, we noted that "The arguments set out above would also be consistent with a 50 basis point move. We predicted on June 7, following the RBA announcement, that the next move in July will also be a 50 basis point increase.

That would push the cash rate to 135 basis points. Having eliminated the emergency policy settings of 2020, the next move would be to take back the 75 basis points of cuts from 1.5% to 0.75% seen in 2019 when the Bank was frustrated at the consistently low inflation prints. A slowdown in the pace of hikes in August can be expected but a response will still be necessary to the likely strong inflation print for the June quarter with a further 25 basis point move required.

With the cash rate having reached 160 basis points by August it will be prudent for the Bank to pause. After that pause we expect further increases of 25 basis points will be required in November and December in response to another disturbing inflation print for the September quarter. That would see 200 basis points of rate increases in seven months for the RBA. 2022 would end with a cash rate of 2.1% – a policy stance that we would assess to be in the contractionary zone.