The attached note takes a look at the RBA's latest interest rate decision and why it made sense to slow down the pace of rate hikes. The key points are as follows:
The RBA sensibly dropped back to a 0.25% hike this month taking the cash rate to 2.6%. Its still signalling more hikes ahead though.
Slowing the pace of rate hikes makes sense: the RBA needs to allow time to assess the impact of rate hikes so far given that they impact with a lag; many households will see a sharp rise in mortgage payments which will depress spending through next year; global inflationary pressures are easing; inflation pressures are less in Australia than elsewhere; and there is now a high risk of global recession which will impact Australia.
Just because the Fed is prepared to run a high risk of recession does not mean the RBA should too. The Fed has an unfortunate track record of continuing to hike until there is a crisis.
We still see the cash rate peaking at 2.85%, but acknowledge upside risk to 3.1%. By late next year the RBA is likely to be cutting interest rates.