Australia's policy tightening to pause, but not stop

The Reserve Bank of Australia (RBA) meets on Tuesday and is likely to keep its cash rate unchanged at 4.75%. This is because recent data have been soft while mortgage rates have generally increased by far more than the RBA’s 25bp hike last month. Nevertheless, the tightening cycle is far from over. Spare capacity in the economy has virtually disappeared and GDP growth will probably accelerate to an above-trend pace over the next 12 months.