July 23 – The RBA’s Difficult Decision

RBA Recap

  • RBA paused, keeping the cash rate at 4.10% for the month of July.
  • The RBA faces difficult decisions ahead, failure to return inflation back to target means higher rates for longer. However, how much pain is enough to ensure targeted progress?
  • The narrative needs to stay in control of the RBA to avoid consumer sentiment and demand running rampant.

The Australian Economy

  • An easing in monthly inflation sees some reprieve potentially on the horizon as we approach quarterly CPI.
  • Consumer sentiment was buoyed by falling inflation but tempered by ongoing RBA tightening bias.

 Market Dynamics

  • The dwindling of ES balances and a negative funding gap across the banking system continues to keep funds tight.
  • This paired with EOFY liquidity target and balance sheet strengthening has seen a strong demand for funds.
  • Reference rates continue to climb slowly, with thin trading in interest rate markets making for dramatic price movements.
  • Both demand for funds and increases in reference rates has favoured investors seize the opportunity lock in longer duration placements.

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Curve Team
Jack Pedersen