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VIEW: Westpac Affirm Base Case Post May Minutes

RBA

Westpac “remain comfortable with our forecast that the terminal rate in the tightening cycle will be 225 basis points.”

  • “But as the minutes highlight quite clearly there is formidable uncertainty around that target.”
  • “However, the minutes do provide some support to our view that the next move in the cycle on June 7 will be an increase of 40 basis points rather than 25.
  • 40 basis points would not conflict with “business as usual”; the grounds for dismissing the case for 40 at the May meeting are not strongly made as is the case with the 15 basis point option; the minutes refer to other central banks wanting to reach neutral “quickly” while the uncertainties highlighted by the minutes do not really come into play until the cash rate is significantly higher than the current 35 basis points.”
  • “We have also seen the slightly uncomfortable evidence that the Bank’s private liaison surveys are playing a critical role in their assessments of their task to bring inflation back to the top of the target band by 2024. The word “uncomfortable” refers to the fact that the Liaison surveys are not publicly available.”
  • “However, the overall messages from the Liaison surveys – a return of some pricing power to business; labour shortages; various non-wage methods used to attract and retain staff and fast increasing labour costs are unlikely to be credibly contradicted by the Wage Price Index (May 18) and Average Weekly Earnings (June 1), which are set to print before that June 7 meeting.”
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com

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