Australian Economy

Goldman Sachs, Bank of America back 1.35pc cash rate by July

“They would be even further out of step if the board decides to maintain a gradual approach,” Mr Morriss said. “You would have to think inflation forecasts will continue to rise whatever the circumstances.”

The Bank of Canada this week increased its cash rate by 50 basis points to 1.5 per cent; the Reserve Bank of New Zealand has increased its cash rate by 50 basis points at each of its past two meetings; and the US Federal Reserve in May increased its cash rate by 50 basis points, the largest rise in 20 years.

‘No smoking gun’

Australia’s central bank surprised economists last month by lifting the record low 0.1 per cent cash rate to 0.35 per cent, in a 25 basis point increase that RBA governor Philip Lowe described as getting back to “business as usual”.

The decision, which was not expected until after the federal election on May 21, came after headline inflation jumped to 5.1 per cent in the March quarter. It was the first time the RBA has increased the cash rate since late 2010.

“In the past, 25 basis points was the standard amount we moved,” Dr Lowe said. “We deviated from that in various times in the past because circumstances required it, but 25 basis points is the standard move.”

ANZ, Westpac and Janus Henderson are all tipping a 40 basis point rise in June.

ANZ thinks this is likely because of growing inflation and average hourly earnings – a measure of wages that has been flagged as important by the RBA – increasing to 5.2 per cent over the year.

But some economists question whether the wages data would prompt an increase beyond business-as-usual.

Barrenjoey chief economist Jo Masters and BetaShares’ David Bassanese are among those with doubts.

“A longer-run view of this relatively obscure wage measure reveals it is inherently volatile over time,” Mr Bassanese said, adding that it was “no smoking gun” for a larger-than-normal cash rate rise.

Ms Masters said data came with cautions. “The lift in hourly wage growth was driven by both a lift in wages paid and a fall in hours worked, as disruption from floods, rainfall and omicron hit,” she said.

Analysis by Barrenjoey showed the number of people taking annual leave compared with the December quarter rose 15 per cent, while those taking sick leave jumped 70 per cent and weather-related absences doubled.

Further, the proportion of those on sick leave working no hours in the reference week was 15 percentage points higher than normal, at 47 per cent.

Taken together, Ms Masters said the “uncertainty” meant it was likely the RBA would go with a business-as-usual 25bps rise at next week’s meeting.

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