The RBA used today’s SOMP to push back on market pricing for hikes. In their central case, core inflation ends 2023 at 2.4%yoy, so the cash rate only starts to rise in 2024. More important is the upside scenario, where the unemployment rate is sub 4% and core inflation is above 2.5% in 2022 … and yet the RBA only starts hiking in 2023. It follows that the hurdle for a hike in 2022 is extremely high.
Higher than expected Q3’21 CPI probably means the RBA will upgrade away from calendar-based forward guidance in November. A consequence of this is that they’ll likely stop targeting the April 23 and April 24 bonds. With terminal rates stable at ~2.25%, the curve is likely to flatten. It’s mostly a short end trade now.
Gov Lowe’s speech, Delta, the Economy, and Monetary Policy, was in many ways a watershed speech. Lowe jettisoned the blurry two-point-something inflation language in favour of a firm commitment to get inflation back to the middle of the target range and distanced himself from the financial stability argument for raising rates, by saying explicitly that … Read more