A client note from Westpac Chief Economist Bill Evans today:

In (very) brief:

  • Markets are on alert for an unexpected near term rate cut from the RBA in response to Westpac's decision to raise the variable mortgage rate by 20 basis points
  • Markets are asking the question as to whether the RBA will move to offset that tightening by cutting rates as early as the next Board meeting on November 3
  • The market probability for a cut in November has increased from 25% to 40% since the Westpac announcement

Evans then looks at episodes of how the RBA responded to changes in Australian commercial bank lending rates and concludes:

  • The historical evidence is that the banks have tended to move in similar, although not identical tranches.
  • 2 periods - 2008 (H1) and 2012 (H1) when the banks have moved independently of an RBA move
  • History also showed us that even when the banks tightened and the Reserve Bank had an explicit easing bias it still took 3 board meetings to decide to offset the effect of the banks' moves
  • If we are to predict a near term rate cut on the basis of an unexpected tightening of financial conditions then we need to assess the full extent of that tightening and signs of its impact on the real economy. To date that information is not yet available. For now, we retain our call for rates to remain on hold in both 2015 and 2016.

Bolding is mine

In (super) brief, Evans is not expecting a rate cut from the Reserve Bank of Australia in November.