RBA hiked the Cash Rate Target by less than expected.
While the key theme from the September Statement, “the full effects of higher interest rates yet to be felt in mortgage payments” has been repeated in the October Statement strong emphasis has been given to the global economy.
In the key final paragraph, the Statement notes that “The Board… is closely monitoring the global economy, household spending and price-setting behaviour”. In the September Statement the “check list” of what it was monitoring was not clearly set out in the final paragraph. While the reference to the global economy was limited to “the outlook for global economic growth has deteriorated.”
Today’s decision does not change our view that the sequence of increases will revert to 25 basis point increases in November; December; and February.However, it seems unlikely that slowing the pace of increase a month earlier than expected will mean a lower terminal rate.
We do not share the RBA’s confidence around the containment of wage pressures and expect that economic growth will have to slow to 1% in 2023 to achieve an acceptable slowdown in inflation and wages growth.
By engineering this positive surprise with today’s decision the end result is likely that the tightening cycle will need to be extended into March when another update on wages growth will be received by the RBA. Consequently,we retain our forecast that the cash rate will peak at 3.6% although now that the sequence of increases has slowed to 25 basis points per meeting the last increase is now likely to be March rather than February.
- Westpac
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