UBS say the Reserve Bank of Australia (RBA) rate hike cycle may be less than it has been in the past

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