MNI RBA Preview - November 2021: Guidance Adjustments Inbound

• The well-documented surge in front end ACGB yields over the last week, coupled with, and partially resulting from, the RBA's inaction when it came to enforcing its 0.10% yield target via purchases of ACGB Apr-24, means that consensus now looks for the RBA to remove its ACGB Apr-24 yield target at the end of Tuesday's monetary policy meeting, with the Bank set to drop yield targeting mechanisms all together.
• Market pricing re: the cash rate has become much more aggressive. 14bp of tightening is priced come the end of Mar '22 (per the IB strip), which essentially represents a near enough full 15bp hike in the cash rate when compared to the current effective rate of 3bp, (the deviation is a result of the record levels of excess liquidity in the banking system in the wake of the measures deployed by the RBA in the wake of the COVID crisis).
• Further out, 145bp of hikes are priced into Mar '23 IBs. Something has to give, although any changes to forward guidance are likely to be much more measured than what is priced in IBs. It is unlikely that the Bank will adjust its bond purchase programme this time around.

Click to view the full preview: RBA Preview - November 2021.pdf