Where are rates likely to go

Westpac have reconfigured their RBA cash rate profile following the July employment report and some revisions to inflation forecasts. However, we have not lifted the forecast terminal rate of 2.6% by the February 2023 Board meeting. We continue to expect a 50bp increase in the cash rate at the August 2 Board meeting. But a pause in the cycle in September now seems unlikely. We expect a 25bp increase in the cash rate at the September 6 Board meeting.

With our estimate of the neutral range of policy being 1.5-2.0% the September move of 25bps would shift the cash rate to 2.1%, into contractionary territory. As we move further towards the end of 2022, we expect that the evidence that the RBA's 200bp increase in just five months will start to impact the spending momentum.