Goldman Sachs and Bank of America expect the Reserve Bank of Australia to announce a full 1 percentage point increase to the cash rate in the next two months.

Financial markets expect a 40 basis point (0.4 of a percentage point) rate rise at the RBA’s June board meeting on Tuesday, and are forecasting the cash rate to rise to 2.9 per cent by the end of the year. 

Goldman Sachs chief economist Andrew Boak says he is tipping a terminal rate of 2.6 per cent by December. 

“Against the backdrop of outsized rate hikes by key global peers, we see the risks as skewed towards the RBA front-loading the tightening cycle with 50 basis point rate hikes in June and July,” Mr Boak said this week.

Bank of America head of Australian Economics and Rates Strategy, Tony Morriss, says the RBA is “far behind the curve”, as other central banks step up their rate rises.

“They would be even further out of step if the board decides to maintain a gradual approach. You would have to think inflation forecasts will continue to rise whatever the circumstances,” Mr Morriss told reporters.

The Bank of Canada increased its cash rate by 50 basis points to 1.5 per cent in recent days, while the Reserve Bank of New Zealand has increased its cash rate by 50 basis points at each of its last two meetings.

The US Federal Reserve increased its cash rate by 50 basis points in May, marking the largest rise in 20 years.

Last month, Australia’s central bank surprised economists by lifting the record low 0.1 per cent cash rate to 0.35 per cent - a 25 basis point increase that RBA governor Philip Lowe describes as a return to “business as usual.”

“In the past, 25 basis points was the standard amount we moved,” Dr Lowe said.

“We deviated from that in various times in the past because circumstances required it, but 25 basis points is the standard move,” he said.