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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.
RBA
The RBA increased its CPI inflation projections across its forecast horizon but downgraded growth in its November Statement on Monetary Policy. This revised outlook in our RBA policy reaction function suggests that the pace of tightening was slowed too soon.
- Our rate equation accounts for the fact that the RBA is forward and as well as backward looking by including a lead of the inflation gap. Thus, the RBA’s forecasts are an important input into the estimation’s results. See MNI Insight: Economics Pointing To Rate Hikes Into 2023 for details.
- The impact of the upward revision to the CPI forecasts outweighed the downward revision to GDP and thus to the output gap (now expected to close in H1 2023 rather than in H2) on the estimated cash rate.
- The average estimated cash rate for Q4 2022 now stands 25bp higher than the end of October update and implies that if inflation and capacity pressures were the only considerations then the RBA should not have pivoted until the December meeting. The Q1 2023 estimate is now suggesting close to 75bp of tightening (up 15bp) and Q2 is now also around 75bp (up 25bp).
- The estimated average Q2 2023 rate now stands at 4.7% from 4% previously and well above AUD OIS average pricing for the quarter (see chart below).
- When dwelling price developments are taken into account the impact of the revised RBA forecasts on the estimated cash rate is a lot more muted with only the current quarter higher and by 25bp, but it still suggests that tightening slowed too soon.
- It is worth noting that these are just estimates from a simple equation and are not predictions.
RBA cash rate estimations for Q2 2023 %
Source: MNI - Market News/Bloomberg/Refinitiv/RBA
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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