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STIR
The fresh, ambiguous forward guidance deployed by the RBA at the end of yesterday's monetary policy decision, coupled with Governor Lowe's choice to reveal situations which could result in cash rate liftoff in '23 or '24, provided a dovish outcome vs. market pricing, which we suggested was overly aggressive ahead of the RBA decision. A reminder that the Governor also deemed the recent repricing to reflect a rate hike in early '22 an overreaction to a stronger than expected underlying inflation print in Q321.
- The first 15bp rate hike is now priced come the end of May '22, per the IB strip (based on 15bp of tightening being priced vs. the current effective cash rate of 0.03%). Meanwhile, ~122bp of tightening is priced come the end of Mar '23. This compares with a 15bp hike being almost fully priced by the end of Mar '22 back on Friday, while Friday's settlement levels pointed to 145bp of tightening through Mar '23. Pricing remains very aggressive when compared to RBA guidance, assuming inflation doesn't overshoot the Bank's expectations and its reaction function does not change.
Fig. 1: Recent Implied Cash Rate Shifts In The IB Strip
Source: MNI - Market News/ASX/Bloomberg
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com
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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