TD Securities strategists Prashant Newnaha and Alex Loo highlight that the Reserve Bank of Australia (RBA) raised the cash rate to 4.35% with a dovish message, viewing risks to inflation and growth as more balanced. Despite signalling a near-term pause, they now expect a final 25 bps hike in August to 4.60%, contingent on Q2 trimmed mean Consumer Price Index (CPI) exceeding the RBA’s forecast and inflation staying sticky.

Dovish hike but one more seen ahead

"The RBA hiked the cash rate 25bps as expected to 4.35% in a 8-1 vote, but the messaging was dovish, pointing to the RBA taking a temporary pause."

"Nonetheless, we now expect the RBA to deliver a final 25bps hike in Aug to 4.60% assuming Q2 trimmed mean CPI exceeds the RBA's Q2 forecast."

"Given the RBA has set a low growth track, it will ultimately be where inflation lands that will determine when the RBA will hike next (the RBA's forecasts assume another 25bps hike in Q3)."

"We discussed back in February that the RBA may ultimately need to take the cash rate to 4.60% in this cycle and this outcome now looks increasingly likely."

"It's clear the RBA is hesitant to hike in June, making August the most likely month the RBA hikes next."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)