VIEW: RBC: A Slower Pace Of RBA Tightening

RBC note that “the step down to 25bp hikes at the RBA’s last 2 meetings adds to the risk that this may be a more drawn-out cycle with a higher peak. Doing a little more now remains prudent in our view but the RBA has opted to move a bit more cautiously as the debate broadens to the likely impact upon activity which continues to prove resilient with few signs of a moderation in household consumption, drawdown of savings, or mortgage stress.”

• “A desire to preserve the labour market gains and low unemployment rate also adds to this risk of a more drawn-out tightening cycle.”
• “Accordingly, we take our terminal to 3.6% by March and are fully conscious that this continues a pattern of upward revision of the last 6 months. We also push out the start of a modest easing cycle to Q124 (from Q423).”
• “The trade-off between (higher) inflation and (weaker) growth is likely to come more sharply into focus in the coming months. The bigger challenge we suspect for global central banks in the year ahead is the risk of sticky and elevated inflation as well as much weaker growth/recession and rising unemployment.”