Bank of America Global Research discusses its expectations for next week's RBA policy meeting.
"The 1Q inflation data were so strong and broad-based that the RBA need not be concerned with the politicization of monetary policy and hike next week. In our view, changes in the RBA forecasts next week are going to be sharp. We think it will start with an initial 15bps hike, but the data justifies an accelerated move over coming months towards a neutral rate around 2.5% in 1H 2023. It will also provide more detail on balance sheet run-down," BofA notes.
"We had assumed a mostly passive approach, but a hawkish shift on the outlook opens the door to a more active run-down. The April RBA Minutes suggests that the Bank was in no rush to drain exchange settlement balances at this point, but that is out of date...While the mood music for AUD FX has deteriorated due to a strong USD and China slowdown, RBA policy normalization coupled with China using commodity-intensive levers such as infrastructure spending should prove supportive in 2H," BofA adds.