These guys are good...
"The RBA has today signalled via its underlying inflation forecasts that a rate hike is imminent. As such we have brought forward our forecast for the next rate hike from July to June. This will take the cash rate to 5%. We still expect a further 25bp hike later in the year, probably November. We have the cash rate plateauing at 5.75% from late 2012.
Inflation is forecast to be at 3% until 2013 and will then rise to 3.25% on the 'technical assumption' that the cash rate will move in line with market pricing. This tells us that the RBA expects that it will ultimately need to do more than the two 25bp rate hikes currently factored into their forecasts (one by early 2012 and one by mid 2013 in line with recent market pricing). This technical assumption is unusual in that the RBA has typically only factored in cash rate moves to their forecast when the cash rate is a long way from neutral (which it is not right now). This tells us that the RBA would have an even higher CPI forecast (that is probably above 3.5%) if they did not assume some further rate adjustments.
These technical features of the forecast change as well as the tone of the Statement suggest that the RBA is not prepared to wait for another CPI to change policy. From our perspective there is no reason that we can see to wait until July. The Bank has probably paused in May so as to get the message out to the broader community that a rate move is likely. They have now been achieved this via the Statement following the May meeting and this latest quarterly Statement on Monetary Policy report.
The main focus of the RBA remains the medium-term inflation risk emanating from the current economic boom. Policy failure for the RBA is getting behind the curve on inflation. Clearly the Q1 CPI report has deeply worried them and they feel another small immediate adjustment to policy is necessary."
