📝RBA to Raise Cash Rate By 50Bps In October: Westpac

Our view had been that the scaling back to a slower pace of tightening could begin from the October meeting, with the cash rate having reached the ‘neutral zone’ at 2.35%.

However there has always been some uncertainty as to whether a starting point of 2.35% would be too far below the Governor’s assessment of neutral.

We know that he has argued in the past that the ‘real’ neutral is at least zero, implying a 2.5% nominal rate given longer term inflation expectations. That is above the 2.35% starting point for the October meeting.

Whether he wants to start the scale-back at a rate below his assessment of neutral or begin when rates are much nearer his estimate of neutral will be influenced by his assessment of the risks on inflation, the labour market and the economy in general.

We now expect the Governor to decide to push the rate more clearly into his best estimate of the contractionary zone before scaling back the pace of increases.

- Westpac