Schroder: The next move by the Australian central bank will be a rate cut and it will come sooner than most people expect.

Schroder stated that the three previous interest rate hikes by the Reserve Bank of Australia had a significant effect, enough to trigger a rate cut earlier than most people expected. "The policy committee can see that the tightening policy is working, pausing the tightening in August and letting the policy transmission spread to the entire economy is the logical next step," said Kellie Wood, head of fixed income at Schroder Australia in a report. "The three rate hikes have had enough dampening effect; negative wealth effects are starting to show." "If household spending continues to naturally decline, inflation will decrease without further rate hikes. But the risk is that this effect may be excessive, leading to a slowdown in consumption turning into a more severe downturn." "The next step for the Reserve Bank of Australia will be a rate cut, and it may be earlier than most people expect."