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RBA Decision – June 2023

The Reserve Bank of Australia (RBA) Board has increased the cash rate by 0.25% to 4.10% at its June meeting.

Leading into the meeting, there was an approximate 50/50 chance of a rate rise as assessed by market pricing, with the probability rising following the higher-than-expected April inflation print which showed the risks of inflation re-accelerating higher.

Leading into the meeting, we thought the RBA might have paused this month before raising again in July, but obviously the RBA wasn’t in any mood to wait.

There was hardly any change from their May statement. Interesting, in that it followed a period in which there were quite a few changes in the statements from meeting to meeting.

Given the largely unchanged statement, there was only one subtle key point of difference – they clearly noted that growth in public sector wages is expected to pick up further and that the annual increase in award wages was higher than it was last year. By implication, the key point of conjecture here is that productivity growth will need to lift significantly from current levels for those wage increases not to add further upward pressure on inflation. We saw this as a subtle dig at the government from the RBA.

We don’t expect any meaningful increases in productivity growth. That together with the upward pressure on public sector wages and award wages, and current inflationary housing market dynamics (housing under-supply and high costs to renovate / build), we expect the RBA to have to raise rates at least another two times over the next six meetings to round out this calendar year.

Following their announcement, Australian equities moved lower, the AUD/USD rose, and bond prices fell (ie. yields higher).