- Yesterday, the yield curve consolidated in response to the RBA’s decision to raise the cash rate to 4.35%.
- 2-year swaps have rallied by 6 bps, 3-year by 12 bps, and 5-year by 6 bps.
- Activity was quiet yesterday, with some market participants looking at longer-term investments before the RBA’s decision.
- NCD margins remain at +45 for 3 months in the domestic space.
RBA Hikes to 4.35%
- The RBA increased the cash rate by 25 basis points to 4.35%, as widely anticipated.
- The RBA retains a tightening bias, although it has somewhat softened its language regarding further rate hikes.
- Inflation forecasts for end-2024 were upwardly revised to 3.5% from 3.25%, but inflation is not expected to return to the top of the target range (2-3%) until late 2025.
- The unemployment rate forecast was slightly lowered, expected to rise to approximately 4.25% (down from 4.5%).
- Markets will continue to price in the possibility of another rate increase in the short term, but the probability of a December rate hike is considered low.
- The more likely month for a potential rate increase is February 2024 when the RBA will have more data and updated forecasts.