Capital Economics: Minimum wage increase strengthens the case for an interest rate hike by the Reserve Bank of Australia

Against the backdrop of market pricing reflecting that August is the most likely timing expectation, the senior Asia-Pacific economist maintains his forecast for another 25 basis point rate hike. Surya acknowledges that the direct impact of the minimum wage increase will be modest, but he points out that the Reserve Bank of Australia’s analysis shows such decisions can influence wage-setting in other sectors. He adds that the likelihood of overall wage growth exceeding the Reserve Bank of Australia’s expectations now appears higher.