Client note from UBS economists (via MNI):

RBA’s “neutral” cash rate level is lower than before at around 3.75% to 4.0%, compared with “traditional” neutral cash rate of 5.5% to 5.75%

They cite:

  • “A combination of wider domestic lending margins relative to the RBA cash rate
  • The likelihood of slower trend domestic GDP growth
  • The likelihood the AUD is going to remain above its post float trade-weighted exchange rate average … all point to a lower RBA neutral cash rate over the next few years”

They say:

  • Not changing their forecast that RBA will push the cash rate up sometime around mid-2015
  • Suggest the extent of upward rate cycle may be less than in the past