Australia's Reserve Bank still likely to hike by year-end

The government in Australia will introduce a temporary levy on household incomes to help pay for the damage caused by recent floods. The floods disaster has not materially changed the economic outlook. The mining investment boom is unstoppable and will kick-in at a time when the economy is already operating at close to full-capacity. Inflation pressures will climb eventually and the Reserve Bank (RBA) will respond to this threat by tightening policy further. Nevertheless, we have changed our forecast and now expect that the next cash rate hike will come in Q3, rather than in April.