Daily Flows & Insights – RBA Job Done For Now?

Daily Flows

  • With skinnier credit spreads in the ‘A’ rated space, market participants are increasing exposure to BBB names in order to increase returns.
  • To maximise return, most have used a barbell approach, locking in TDs from ‘A’ rated names at the shorter end and BBB names at the longer end with levels significantly higher than ‘A’ rated counterparties.
  • Tightness in the system is subsiding. ADIs are recalibrating their 3 month margins accordingly. However, +50 is still attainable in current conditions.

RBA Job done for now?

  • Yesterday’s RBA minutes revealed the reasons behind the decision to hold interest rates, noting that “monetary policy was clearly restrictive at the prevailing cash rate”.
  • This change in tone signals to the market that the RBA recognises that we are past a neutral stage, now it is more of a question of how high and how long is needed to return inflation to target by mid-2025.
  • The board noted that Consumer spending has slowed as a result of higher inflation, increased tax payments, high interest rates and fixed-rate loans rolling off.
  • The RBA will keep their eye on supply factors such as weak productivity which has been driving growth in unit labour costs.
  • The tight labour market will also be a source of concern which they noted is currently at a level conducive to above-average increases in prices and wages.
  • It seems the board is content with the current levels, further tightening will depend on how quickly inflation starts to subside and the evolving economy.
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Curve Team
Jack Pedersen