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TD: What Cash Rate Forecasts Will the RBA Assume In Its SoMP?

RBA
BulletMarketsFixed IncomeForeign Exchange

When it comes to the release of the RBA’s SoMP, TD Securities note that “of most interest for markets will be the cash rate assumptions the RBA incorporates into its forecasts. The RBA leaned heavily on median analyst cash rate forecasts rather than OIS in May. Now the Bank could rely on a mix of median analyst forecasts and OIS. We take a stab at what cash rate forecasts the RBA could use. They are: End 2022 2.85%, End 2023 3.10% and End 2024 2.75%. If the RBA assumes end 2022 cash rate of 2.85%, the Australian front end should rally as markets will read this as the RBA assuming 100bps of hikes into year end. Upside risks to our 2023 CPI forecast do not raise our terminal cash rate forecast but mean the peak rate could be kept on hold for longer. A cash rate close to 3.50% could be considered moderately restrictive. We see no urgency to lift our 3.35% terminal rate forecast unless our global terminal rate forecasts are lifted.”

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When it comes to the release of the RBA’s SoMP, TD Securities note that “of most interest for markets will be the cash rate assumptions the RBA incorporates into its forecasts. The RBA leaned heavily on median analyst cash rate forecasts rather than OIS in May. Now the Bank could rely on a mix of median analyst forecasts and OIS. We take a stab at what cash rate forecasts the RBA could use. They are: End 2022 2.85%, End 2023 3.10% and End 2024 2.75%. If the RBA assumes end 2022 cash rate of 2.85%, the Australian front end should rally as markets will read this as the RBA assuming 100bps of hikes into year end. Upside risks to our 2023 CPI forecast do not raise our terminal cash rate forecast but mean the peak rate could be kept on hold for longer. A cash rate close to 3.50% could be considered moderately restrictive. We see no urgency to lift our 3.35% terminal rate forecast unless our global terminal rate forecasts are lifted.”