Market Pricing Of ’22 Tightening Remains Comfortably Off Of Peak

A quick look at STIR pricing shows that the IB strip looks for the cash rate to sit around 2.60% come the end of the RBA’s December ’22 meeting (per BBG’s WIRP function), comfortably shy of the ~3.00% cycle peak observed earlier in the month. Global growth fears and a slight moderation in market pricing re: the U.S. Fed tightening cycle have facilitated this pullback.

• Note that our policy team published an interview with RBA board member Harper late on Thursday (Sydney time).
• Harper noted that both surveys of consumers and financial market pricing indicate that inflation expectations remain within the RBA’s 2%-3% target range while a weakening housing market should dampen future price increases. He added that “as house prices fall, this will drag on consumption and add to the moderating influence on future inflation of interest rate rises and the rising cost of living,” Asked if he saw downside economic risks in the medium term, Harper said the strength of the labour market and the outlook for public spending, including plans announced by the new government, made a recession “highly unlikely.” On wages, Harper noted that a pickup in wage growth would not add fuel to inflation so long as productivity was “growing at least as fast as real wages.”
• All in all, he seemingly stuck with the central message provided by the Bank in recent weeks.
• ~230bp of tightening across the remaining 7 meetings of ’22 still seems fairly aggressive given the RBA’s recent rounds of communique and back to usual business language re: 25bp rate hikes.
• Also, note some of the higher frequency housing data has shown a modest fall in house prices in the major cities in the wake of the first hike of the cycle.