The attached note takes a look at the outlook for the RBA's cash rate following its latest rate hike. The key points are as follows:
The RBA has hiked the cash rate by another 0.5% taking it to 1.85% and signalling more rate hikes ahead.
Market & consensus expectations for the cash rate to rise above 3% are too hawkish as: global supply pressures on inflation appear to be easing; the RBA is already getting traction in terms of slowing demand and is starting to recognise this with downgrades to the outlook for economic growth; inflation expectations are still contained; & many households will experience significant financial stress with rising rates.
We see the pace of cash rate hikes ahead slowing down with the cash rate peaking around 2.6% either at the end of this year or early next year, which is at the low end of market and economists' expectations. Rates are likely to be falling in the second half of next year.