Overlay Graphic
we believe it’s possible
Invest Blue is passionate about helping people reach their goals and dreams by providing quality, tailored financial advice.

Westpac – Interest rates

Overall the July RBA decision and Governor’s statement gives little additional information with only incremental changes in commentary and the ‘firmly on hold’ message retained.

Next month’s meeting (on August 1) could see a more material shift, with a key update on CPI inflation due July 26 and the Bank reassessing its economic forecasts ahead of the Statement on Monetary Policy (due out August 4).

However, key questions around weather disruptions, the pace of wages growth and housing market conditions are all still likely to be unresolved. Uncertainty is always a factor in central bank decision-making, and even when it is high or strikes at the core of how the economy is thought to work – as it does for example with the current puzzle around weak wage growth – it does not preclude policymakers from making judgements and acting if need be. And indeed, the RBA’s policy decisions will ultimately come back to its views around medium term prospects for growth and inflation, and additional considerations around potential risks to financial stability.

Westpac continues to expect a weaker growth profile in 2018 – 2.5% vs the RBA’s current forecast of 3.25%. As such, we expect the Bank to eventually mark down its growth expectations. This could in turn prompt a shift in policy rhetoric. However, with inflation expected to track broadly in line with the RBA’s forecast gradual return to target, and financial stability risks still likely to be factoring into the Bank’s thinking, we suspect this weaker trajectory will not be weak enough to draw further rate cuts. All up, we remain comfortable with our view that the official cash rate will remain on hold throughout 2017 and 2018.