Much has been made of the term “pre-set path” and we agree that it signals that at some point the Board will take a shift down in the pace of tightening from 50 basis points per meeting to 25 basis points.
However, we believe that shift will not occur in September because the current cash rate (1.85%) is still well short of the Governor’s assessment of “neutral” which he has indicated in a previous speech is likely to be around 2.5%.
Once having reached 2.35% in September it seems likely the Board will lower the pace to 25 basis points as policy moves into the “contractionary zone”. Note that unlike the Minutes to the July Board meeting there is no observation that “the level of interest rates was still very low.”, suggesting that the Board is nearing that period of lower monthly increases.
We also think that this sequence of 25 basis point movements will not incorporate a pause and will need to extend into 2023 with the final move in February.
- Westpac
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