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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
AUSTRALIA
Q2 CPI is released tomorrow and given the pickup in inflation in April and May, it will be watched closely for signs of a pickup in inflation pressures, especially domestically-driven ones. If the data print in line with RBA May expectations of 3.8% for headline and trimmed mean, requiring 1.0% q/q and 0.8% quarterly rises, then rates are likely to be unchanged at the August 6 meeting. Our simple policy reaction function implies that if the RBA has to revise up its CPI trajectory, then the outlook is for higher rates.
- Our base case uses the RBA’s May forecasts for the CPI and GDP to calculate the inflation and output gaps. It estimates that economic fundamentals suggest that rates should have been around 10bp higher in Q2 than they were and that they would peak another 10bp above that around mid-2025.
- If we assume that the inflation profile is revised up by 0.2pp each quarter over the forecast horizon resulting in the top of the band being achieved 2 quarters later in Q4 2025, then rates are 12.5bp (half a rate hike) higher than baseline by end 2025. It is worth noting that the inflation gap variable in the equation leads by 2 quarters.
- The reverse is the case if inflation is revised down 0.2pp.
- Our worst case scenario has inflation stuck at 4%, which sees half a rate hike by end 2024, a full 25bp by mid-2025 and another one by end-2025 relative to the base case.
Australia RBA policy reaction function scenarios %
Source: MNI - Market News/Refinitiv
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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