Australia's monetary tightening on course to resume this year

The Reserve Bank of Australia (RBA) held its cash rate at 4.75% today, as expected. Nonetheless, core inflation rose in Q1 while above-trend GDP growth looks likely over 2011-12. The upshot is that we still expect the RBA to resume its policy tightening sooner and more aggressively than the markets anticipate. We believe the cash rate will be hiked by Q3 and reach 5.75% by mid-2012.

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