VIEW: Goldman Sachs Now See Longer & Higher Tightening Cycle, Before Cuts In ‘24

Goldman Sachs note that “against the backdrop of such a large and protracted inflation overshoot, we were surprised by the RBA’s October decision to slow the pace of rate hikes - particularly before the policy rate had reached the lower bound of their 3.00-4.50% nominal ‘neutral rate’ estimate.”

• “Looking forward, the RBA’s more frequent Board meetings (compared to peers) do provide it greater optionality, but we do not expect the RBA will risk falling too far behind a synchronized global tightening cycle.”
• “We also suspect that the Review of the RBA due in March 2023 will heighten pressure on the RBA to achieve its inflation mandate and make it uncomfortable for the RBA to stand pat on policy through H123 while inflation is likely be so far above-target.”
• “All considered, we now expect 25bp rate hikes each month to May 2023 (inclusive) - to a terminal rate of 4.10% (prior: 3.60%) - followed by 110bp of easing over 2024 to 3.0%.”