Fresh Cycle Lows As RBA Surprises With 25bp Hike

Fresh cycle lows for both YM & XM as the RBA provides a larger than expected 25bp cash rate, while marking its near-term inflation forecast notably higher, indicating that both headline and underlying inflation will only fall back to the upper end of its target band by around mid-24.

• This provided a very hawkish tinge to the statement, with the Bank noting that the inflation outlook “will require a further lift in interest rates over the period ahead. The Board will continue to closely monitor the incoming information and evolving balance of risks as it determines the timing and extent of future interest rate increases.”
• A markdown in GDP expectations and a slight mark lower for the unemployment track were also indicated.
• It is had to get a handle on why the RBA chose to deploy a 25bp rate hike, did it view 40bp as too aggressive with the risk of destabilising bond/funding markets? Or did it want to show that it was willing to think outside of the box?
• YM last prints 15.5 ticks lower on the day, with XM -9.0 as the curve bear flattens. Note that both contracts hover a touch above session lows.
• Bills run 10-22 ticks lower through the reds with IRU2 & IRZ2 underperforming.
• Governor Lowe will speak ahead of the Sydney session close (16:00 Sydney/07:00 London).