Westpac tips interest rate cut in July
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The news: Westpac has changed its prediction for the next Reserve Bank rate cut to July, from August, following better than expected monthly inflation figures.
However, the bank's chief economist Luci Ellis has warned the cut is not the "shoo-in" markets appear to believe it is.
The context: Westpac's shift in expectations follows a similar move from the Commonwealth Bank on Wednesday after the monthly CPI read. Some economists still think August is more likely when the RBA has the benefit of a full quarter's data, however the markets are overwhelmingly pricing in a July cut.
Westpac expects three further cuts after a July easing to a terminal rate of 2.85% but is unclear on the timing, noting it depends on the "post-meeting tone".
Ellis warned the RBA's thinking is "still shaped by concerns about the tight labour market, slow economy-wide productivity growth and the pricing implications of recovering demand" and to expect "non-committal, even grudging, language in the post-meeting communication".
What they said: "Given the lingering uncertainties and the RBA’s concerns about a tight labour market, expect its post-meeting language to be non-committal, even a little grudging about the decision to cut," Ellis said in a note.
"One month’s data ordinarily wouldn’t – and shouldn’t – determine the RBA’s forecast and decision-making," she said.
"We also note the Governor’s particular caution about the monthly CPI indicator expressed in the May post-meeting media conference.
"This was an explicit steer that the RBA’s thinking in May was that it did not plan to do back-to-back cuts but would wait for the quarterly CPI ahead of its August meeting. And they still might do that, but it is harder to justify now."
The source: Westpac analysis
