VIEW: RBC: Governor Keeps Maximum Optionality For Oct

After Governor Lowe’s testimony RBC write “much of the discussion today was focused on the RBA’s determination to set policy to ensure inflation moves back into its 2-3% target range, the importance of keeping inflationary expectations anchored and the shifting inflation psychology. That clearly continues to factor heavily into their policy deliberations and argues for further tightening.”

• “We think this gave the testimony a mildly hawkish tone despite the explicit confirmation that a step down in the pace of tightening will be actively considered at the next board meeting.”
• “The continued outsized pace of global central bank tightening will also keep pressure on the RBA to deliver another 50bp move in Oct. We think it is a close call between 25bp or 50bp at the next meeting and our long held base case remains for +25bp.”
• “More important is where the cash rate will peak. In line with the global trend, the RBA is likely to need to move into clearly restrictive territory but the faster pace of policy transmission to the real economy via the dominance of fixed rate mortgages and highly indebted households continues to suggest that RBA terminal should peak below that of the U.S. (and other economies).”