June 23 – Narrow Path Narrows For The RBA

RBA Recap

  • RBA surprises markets and economists with their twelfth rate hike, taking the cash rate to 4.10%.
  • It is becoming clear that the RBA is relying less on forecasting and rather dealing with the here and now.
  • The RBA is still walking a narrow path but it appears to be narrowing.

The Australian Economy

  • Whilst the Economy is showing signs of turning, it will be interested to see how the immigration story may feed into aggregate GDP.
  • Consumer sentiment continues to remain at recessionary levels and the recently robust business conditions begin to enter negative territory.
  • Despite this, the labour market is still showing resilience, fuelling RBA hawkishness to come.

Market Dynamics

  • Demand for funds has remained persistent across the banking system since overseas liquidity concerns spooked regulators and liquidity risk managers.
  • This paired with a winding down of pandemic RBA liquidity provisions and the recent surprise June hike has seen TD and NCD rates remain extremely elevated.
  • As we near the peak of the rate hike cycle, how much longer will 5.50% and above Term Deposits be offered for?

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Curve Team
Jack Pedersen