📝 See RBA Holding The Cash Rate Unchanged In June: Westpac

We remain comfortable with our 4% inflation forecast by year’s end with no need for any further increases in the cash rate. Markets are now pricing in a 100% chance of a further rate increase by August. The odds should probably be more evenly balanced than that given the extraordinary in-built lags in the system. Market pricing has already been wildly out of line on three occasions in this unique cycle: in June, October and May

In this cycle the FOMC is using a less effective instrument (the federal funds rate) than the RBA’s cash rate given that US household borrow is typically on fixed-rate terms of 20-30 years - the federal funds rate operates primarily through business lending; credit card rates and asset market channels rather than directly through the cash-flow of the household sector. In this cycle, US households have been more resilient than we are seeing in Australia, allowing the RBA to achieve its objectives with a more moderate tightening cycle. Despite the significant gap that is opening up between the federal funds rate and the cash rate, the RBA should not be seeking to chase the FOMC

There is too much uncertainty for the RBA Board to raise the cash rate again next week. In particular, the outlook for household spending is very worrying, especially with inbuilt lags associated with this unique cycle. An extended pause to allow full evaluation of these lags is the best policy

- Westpac