- With only a 20% chance of an RBA hike priced in, the pause announcement played to the majority of market expectations and did not see dramatic interest rate movements.
- At 4.70% & 4.54%, 6 month BBSW and 1 year swaps continue to offer the highest yield across the curve.
- Correspondingly, TD flow has been directed towards this tenor with a standout rate of 5.80% being offered for both terms.
- NCD margins are being offered at +50 for 3 months, with a few market participants offering bespoke levels of +55 to attract.
RBA Watching and Waiting
- There was less of a surprise from the RBA this month with the Board electing to leave the cash rate on hold in line with market pricing.
- It was more split amongst economists and commentators with quite a few expecting another hike at yesterday’s meeting.
- Despite the pause, the RBA continues to suggest “further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe.”
- Further tightening still hinges on the incoming data, with quarterly inflation released the week before the August meeting, the key release to watch.
- While many think the RBA will be hiking again come August, the market is less convinced.
- The market is currently 50/50 on a move in August with a hike not fully priced in until October.
- While historical precedence favours a move in sync with the quarterly update from the RBA which comes in August, the RBA over the past few years has moved to the beat of its own drum so anything is possible.
- It would take a substantial downside outcome from inflation for the RBA to remain on hold next month or some clear evidence that the speed of economy had shifted down a gear or two.