Bank of America (BofA) has shared their expectations and potential impacts related to the upcoming Reserve Bank of Australia (RBA) meeting:
Rate Hike Expectation: BofA anticipates the RBA to raise the cash rate by 25 basis points, moving it from 4.1% to 4.35%. They believe this decision would be optimal for offering sustained support to Australia's robust labor market and for ensuring that inflation gradually approaches the upper boundary of the target range.
Rate Stabilization: If BofA's projection of a rate hike in August comes to fruition, they predict that the RBA will maintain these rates for the remainder of the year. This pause will allow the central bank to gauge the economic repercussions of the elevated rates.
AUD Support: The potential rate hikes have been beneficial for the Australian Dollar (AUD), albeit moderately. Despite this, BofA points out that domestic policy rates in Australia are still comparatively less constraining than in other regions.
Recession Avoidance: BofA posits that Australia is in a favorable position to steer clear of a recession, especially when compared to other G10 countries. This economic stability would likely emerge as a mid-term benefit, particularly as global central banks are projected to transition into an easing cycle by 2024.
Bank of America foresees the RBA opting for a modest rate hike in the upcoming meeting, which they believe will bolster the AUD to some extent. Additionally, they maintain a positive outlook on Australia's ability to circumvent a potential recession, especially when juxtaposed against its G10 counterparts.