The key points are:
The three hikes which took monetary policy to slightly tight provided space for the RBA to pause and assess the response with signs that the economy is slowing as expected.
However, the RBA retained a tightening bias noting that inflation Is “still too high” and is likely to remain so for some time and that it will do whatever is necessary to achieve its mandate, “including increasing the cash rate further if required”, but with no reference to cutting it.
We are continuing to allow for a further rate hike in August and have another one pencilled in for November reflecting the still rising trend in underlying inflation and risks that it will take longer to bring it back under control.
The US/Iran peace deal likely heads off a worst-case scenario in terms of a further hit to inflation and growth – but the RBA is likely to remain wary of the second-round flow through to inflation from still high oil prices and the oil supply disruption that “will take some time to resolve”.
The Budget did little to alleviate near term pressure on inflation from high levels of government spending adding to demand, instead locking in Federal spending just below 27% of GDP which is well above pre pandemic norms. Any further cost of living stimulus will only add to inflationary pressure.