The RBA’s decision to leave rates unchanged at its meeting this week came as a surprise to most. As it turns out, a majority of the Board preferred to wait for the full Q2 CPI data (due by end-July) before cutting rates, amid concerns about resurgent price pressures in certain areas. Our view – supported by pricing indicators in recent business surveys – is that underlying inflation will continue to trend lower. Accordingly, we’re sticking with our below-consensus terminal rate forecast of 2.85%. However, given the Bank’s gradualist stance, we now expect the trough to occur in Q2 next year, rather than in Q1.
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