VIEW: Westpac Looking For 50bp Hike Next Week

Ahead of next week’s RBA meeting Westpac expect “the Board will decide to lift the cash rate by 50 basis points from 0.85% to 1.35%.”

• “We assess the neutral zone for the cash rate at 1.5-2.0%. Consequently, even after that move the cash rate will still be below the “neutral zone” and in stimulatory territory.”
• “Following the May Board meeting when the cash rate was raised by 0.25% the Governor’s subsequent press conference left listeners with a clear impression that the Board was likely to follow a path of “steady” 25 basis point movements. While we acknowledged that signal from the press conference, we argued that the time was right to predict the “right policy” rather than follow the guidance.”
• “The “right policy” was to make a larger move when rates were clearly in the stimulatory zone; inflation was well above the target zone; and the unemployment rate was at a 48 year low. We argued for a 40 basis point increase at the July meeting, while acknowledging that a 50 point increase was fully justified by our arguments.”
• “We advocated pushing hard on rates at the beginning of the cycle when the risk of overtightening was low. It was really important to send a decisive signal that the RBA was committed to returning inflation to within the target band in the medium term.”
• “Consequently, we were encouraged by the decision at the June meeting to raise the cash rate by 50 basis points. Note that the last time there was a 50 basis point increase was in February 2000.”