VIEW: ANZ: RBA Later, But Perhaps Higher, Than The Market

ANZ note that "Governor Lowe's recent statements about the level of the neutral rate and the flatness of the Phillips curve could combine to imply a faster and more aggressive start to the tightening cycle when it eventually comes. Having said this, we think the RBA will want to be cautious when it finally starts to tighten (Q223 is our current estimate). But if the RBA's views about the neutral rate and the Phillips curve turn out to be close to reality, it may not have the luxury of caution. If the RBA does go slowly regardless of what it 'should' do, we may find that the tightening cycle is very elongated. We think the real neutral rate is probably closer to zero than the 1% the RBA estimated in 2017. What's more, global interest rates are expected to act as a constraint on how far and fast the RBA can move. But even a zero neutral real rate looks to be higher than the market is currently pricing."