📝 Lifting RBA Terminal Rate to 3.6%: Westpac

We expect it will decide to raise the cash rate by a further 50bps to 2.85%. On September 19 we changed our forecast for the October meeting from a 25bp increase to a 50bp increase.

Westpac has raised its forecast for the terminal federal funds rate from 3.375% to 4.625% (up 125bps). This change occurred in the aftermath of the August inflation report for the US on September 14 (up 75bps) and the FOMC meeting on September 21 (up a further 50bps).

Given this view and in light of the rise in global rates, it seems sensible to push the cash rate to 2.85% in October, taking it comfortably above the neutral benchmark before scaling back the pace of rate increases.

By lifting our forecast for the October meeting from 25 to 50bps we lifted our forecast for the RBA terminal rate by 25bps to 3.6% compared to a 125bp increase to our federal funds rate outlook to 4.625%. Consequently, we now have the federal funds rate peaking 1.025% higher than the RBA peak.

-Westpac