Firmer Post-RBA On 25bp Hike & Mark Lower In Terminal Rate Pricing

Bonds firm vs. pre-RBA levels after the Bank delivered the widely expected 25bp rate hike, with the pricing for a potential 50bp rate hike unwound (32bp of tightening was priced into dated OIS pre-decision). Cash ACGBs now print 1.5-5.5bp cheaper on the day, with bear steepening coming to the fore as the front-end benefits more from the 25bp rate hike and terminal cash rate pricing shifting ~10bp lower vs. pre-decision levels (per RBA dated OIS).

• Outside of the 25bp rate hike we saw the Bank mark its CPI forecast higher alongside a downgrade in its economic growth forecasts.
• Elsewhere, the Bank presented well-defined risks to its outlook that it had flagged before, in addition to reaffirming the idea that it looking to return inflation to its 2-3 target band “over time. It is seeking to do this while keeping the economy on an even keel. The path to achieving this balance remains a narrow one and it is clouded in uncertainty.”
• There was a more explicit reference to the Bank’s acknowledgement of the lagged impact of monetary policy, which may have weighed on OIS pricing of the RBA tightening cycle further.
• The Board also noted that it has “increased interest rates materially since May,” which some of the more dovish RBA watchers will flag as a signal that end of the Bank’s hiking cycle is nearing, another potential source of receiver side flows in OIS.
• The Bank reaffirmed that it “expects to increase interest rates further over the period ahead,” with familiar inputs into its decision making process highlighted.