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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
In its latest Statement on Monetary Policy the RBA revised down its 2023 growth and inflation projections. We have fed these into our RBA cash rate model as well as updated CPI, lending rate and house price data. The equation is now indicating that economic fundamentals are pointing to the cash rate at 4% by the end of 2023 and then probably staying there in H1 2024. Unlike market pricing, it is not yet signalling any rate cuts as the inflation gap remains positive.
- The RBA’s new forecasts result in the output gap closing in H1 2024 and it is then slightly negative for the rest of the forecast horizon. While the inflation gap narrows it doesn’t close we use the mid-point of the target band). The revised forecasts have resulted in model rate estimates being around 75bp lower by Q1 2024 at 4.06% compared to 4.82% calculated at the end of March.
- Both equations with and without house prices are estimating Q2 & Q3 2023 rates below the current quarterly average of 3.77. But without considering house prices, an additional 40bp of tightening by Q1 2024 is still in the model’s estimates, which is above AUD OIS market pricing. According to the equation, economics are suggesting a slower pace of tightening in H1 2023 than has occurred.
- When CoreLogic house prices are included and assumed to rise at the April pace going forward, then rates at 3.5% in Q2 2023 are consistent with economic fundamentals with only another 25bp of tightening to 3.75% estimated by Q1 2024, which is down about 25bp on the previous estimate and on the model excluding housing.
- Econometric estimates are only estimates and not projections.
RBA cash rate estimates Q4 2023 %
Source: MNI - Market News/Bloomberg/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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