VIEW: Westpac’s Evans Holds Base Case, Nervous Re: Hikes Later In '23

Westpac Chief Economist Bill Evens remains comfortable with his existing view on the trajectory for the cash rate i.e. a 50 basis point hike in September; followed by 4 consecutive 25 basis points hikes across the following four meetings culminating in a peak cash rate of 3.35%. He expects that such a profile will be sufficient to “flatten demand with GDP growth slowing to 1% in 2023 causing inflation psychology to be wrung out of the system as businesses are deterred by the soft demand conditions from further rounds of price increases.”

• However, he has now noted that he is “nervous that the “patient” approach to reaching the target over a two-and-a-half-year period runs the risk of inflationary expectations becoming embedded in the system which would require a most undesirable second stage of rate hikes some time later in 2023.”