Daily Flows & Insights – RBA Keeping a Hawkish Eye on the Economy, Inflation Here to Stay

Daily Flows

  • Deposit rates have cooled this week in the lead up to Christmas, with rates in the 5.25% region for 12 months. Opportunities still remain at the short end of the curve, with A3/BBB- names paying up to 5.10% for 3 months.
  • BBB floating-rate paper continues to draw interest as investors enjoy a pick-up in yield in exchange for longer duration, with a Feb 2027 FRN pricing at +150 today.
  • NCD flows have been strong with A1 foreign branch banks paying +55 to attract and retain funds.

RBA Keeping a Hawkish Eye on the Economy, Inflation Here to Stay

  • The RBA’s minutes were released this morning, revealing the central bank considered raising interest rates in its December meeting before agreeing the case to pause was stronger. Concerns about rising unemployment and pressures on households motivated their decision to hold the cash rate at 4.35%.
  • The RBA kept the door open to further tightening of monetary policy based on incoming economic data, with the risk that inflation remains stickier than expected.
  • The bank sees inflation returning to the top of its 2-3% target range only by the end of 2025, another two years away, signalling rate cuts may still be some time away as they adopt a “wait and see” approach. Despite this, markets have a first cut priced in for June 2024 and another by November of the same year.
  • This marked the last major economic release for 2023, with the RBA’s Private Sector Credit in on Friday unlikely to move the needle.
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Curve Team
Josiah Binet