Westpac forecasts that the RBA will hold rates now, but risks loom

Westpac holds the view that the Reserve Bank of Australia will not raise interest rates further from here.

Westpac reasons:

• If the real economy continues to evolve as we anticipate, i.e. economic growth remains well below–trend and slack emerges in the labour market, inflation should continue to decelerate at pace. That will give the RBA Board confidence that policy is working as intended, shifting the focus towards when it is most appropriate to begin easing policy, which we anticipate will be in Q3 2024.

Westpac do acknowledge a risk to this view:

• However, if there were to be further material upside surprises to the inflation outlook in the near– term – something that the RBA Board clearly has a low tolerance for – the risk of another interest rate increase is not dismissible.

Which sounds reasonable. The RBA has jacked up its cash rate significantly and quickly. The feed-through to mortgage rates has weighed on consumer spending and will continue to do so. With the Christmas buying season nearly upon us I suspect the effects of past rate hikes to become much clearer with less spending than would otherwise be the case.

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The rate hike cycle … so far?

This article was written by Eamonn Sheridan at http://www.forexlive.com.