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According to analysts at Westpac, the RBA’s recent shift to neutral is significant because it clearly establishes that the Bank is prepared to contemplate rate cuts and therefore reinforces the market’s current thinking which will underpin price action for weeks to come.

Key Quotes

“Our long held expectation remains more downbeat, albeit not weak enough to warrant forecasting a rate cut. Accordingly, even if the RBA moves further towards Westpac’s current view it seems likely that rates will remain on hold.”

“The move to a balanced rate outlook – a position that has really only emerged since the housing markets have reversed – is consistent with changes announced by other central banks, notably the US Federal Reserve. So we would not expect any significant near term revision to current thinking as the price action responds to the incoming data. That said, we do think that the data would need to deteriorate strongly to push the market to either bring forward rate cut timing, or factor in a larger easing cycle. The historical tendency of the trend to mean revert suggests that there is a lot of bad news in the price already.”