Bullock Highlights Domestic Inflation Pressure, YM & Bills Come Under Some PRessure

Key snips from RBA Governor Bullock's appearance in front of the ABE’s annual dinner, with topic of the address being ‘A Monetary Policy Fit for the Future’:

• “I would like to focus on one particular consideration for policy: that the remaining inflation challenge we are dealing with is increasingly homegrown and demand driven.”
• “If inflation is simply the product of global supply disruptions or other price rises that monetary policy has little influence over then the appropriate response from interest rates would generally be limited. This is especially the case if inflation is driven by just a few items such as fuel, electricity or rents. However, a more substantial monetary policy tightening is the right response to inflation that results from aggregate demand exceeding the economy’s potential to meet that demand.”
• “We still have to bring inflation back down to target while preserving as much of the gains made in the labour market over the past few years as possible. We are still seeking to tread that narrow path. At the same time, we are changing our monetary policy processes and improving our culture. And while I haven’t talked about it tonight, there is also substantial work underway to change our governance and uplift our risk management. “
• The link to her speech and an audio feed can be found here.
• Note there will be a Q&A session.
• The comments surrounding growing domestic inflationary pressure and the subsequent wording re: aggregate demand and monetary tightening have applied pressure to YM futures and the Bill strip.
• Terminal policy rate pricing on the RBA-dated OIS strip finished Sydney trade 10bp above prevailing effective cash rate levels, i.e. indicating 40% odds of a 25bp hike come the end of the May decision.