Today’s 50 basis points rate rise was in line with expectations and with quarterly inflation numbers out this month, there is a case for more rises coming in July and August.
We’re of the view that the cash rate will rise to around 2-2.25% by the end of the year.
The big untold story here though is what’s happening in the United States where 10-year bond yields fell well below 3% on Friday. This is well off the peak level in the mid 3% range. It implies growth expectations are falling. We’re not surprised.
Bottom line: We think a recession is on the cards towards the end of this year.
The RBA continues to point to external factors as drivers for its decision. It’s now using the word “extraordinary” to describe the rate setting we’ve had over the past few years.
But it also admits that medium term inflation isn’t a problem, which means that a short and sharp recession is the most likely outcome in the near term.