VIEW: Westpac's Evans Affirms RBA Call

Westpac chief economist Bill Evans notes that he confirms "the view we have held since June 18 that the first rate increase from the RBA will be the February Board meeting in 2023. Markets continue to run ahead of the RBA's likely timing where the policy approach has changed to favour patience."

• "As we have consistently emphasised, this expected lift in inflation reflected, in the first stage, the "collision" of strong demand growth, with supply constrained goods and labour markets. Those pressures will be most intense around the construction of new dwellings. As we move through 2022 the source of the inflation pulse is likely to pivot from supply constraints to rising wages growth as the unemployment rate falls below 4% by year's end. Wage pressures are the most reliable sign that inflation pressures will be sustained underpinning our forecast two year tightening cycle where we expect the cash rate to peak at 1.25% by end 2024."
• "Remember that the RBA believes that, in this cycle, it is justified in being patient to ensure a sustainable result. The almost "impatient" approach now embedded in markets may be underestimating the significance of the Governor's commitment to moving patiently- only when the objectives of inflation and full employment have been firmly achieved rather than forecast."
• "The strong existing guidance, particularly during 2020, was key to underpinning confidence in the RBA's commitment to doing everything reasonably within its powers to protect the Australian economy. Success is now likely to come earlier than expected and a cautious recognition of that prospect would be welcome."