Australia to pause in April before hiking in May

Moving early has given the Reserve Bank of Australia (RBA) the flexibility to vary the pace of monetary tightening. Further rate hikes are inevitable but labour market and retail sales data have been disappointing since the RBA move in early March. It is a close call but we forecast that rates will be left at 4.00% on 6th April. This contrasts with the markets which expect another 25bp rate hike. We continue to forecast that the cash rate will rise to 5.00% by end-2010.

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