A Little Lower Post-RBA

Some pressure in the space in the wake of the RBA release, YM -6.5, XM -4.5, while the belly leads the way lower as the RBA managed to tick more hawkish boxes than it skipped.

• The RBA's move to trim the weekly government bond purchases to A$4bn at the expiration of the current purchase plan in early September vs. the existing A$5bn, alongside a first review date of the new scheme at the Bank's November meeting will be adding some weight to the ACGB space. Note that the accompanying documentation points to no change in the 80/20 ACGB/semi bond weights in the new purchase scheme.
• The fact that the RBA seems to be relatively sanguine re: the economic impact of the recent COVID lockdowns is likely to add some incremental pressure as well.
• Elsewhere, there was a slight tweak to the Bank's broader guidance. The concluding paragraph of the statement now reads: "The Board remains committed to maintaining highly supportive monetary conditions to support a return to full employment in Australia and inflation consistent with the target. It will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range. The Bank's central scenario for the economy is that this condition will not be met before 2024. Meeting it will require the labour market to be tight enough to generate wages growth that is materially higher than it is currently." This removes the reference to "at the earliest" surrounding the 2024 part of the passage, which is indicative of a lest a marginal downtick in RBA conviction surrounding the guidance.
• Still the Bank remains cautious re: inflation and wage growth, as it was pre-COVID, which is preventing an outright hawkish read through (although that presents no surprise).
• In the section of the address covering lending surrounding the housing market the Bank highlighted an uptick in investment lending.