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Off Worst Levels, Lowe Notes More Hikes To Come

AUSSIE BONDS

YM & XM nudged lower in early Sydney dealing, with the former looking through its overnight base, although the contracts have nudged away from worst levels in recent trade, last dealing -5.5 & -5.0, respectively. Wider cash ACGB trade sees the major benchmarks running 4-6bp cheaper, bear flattening. EFPs are mixed, with the 3-/10-Year box twist flattening as a result. Bills sit 1-7bp lower through the reds.

  • RBA Governor Lowe’s address highlighted the need to anchor inflation expectations, while stressing that the RBA is undergoing a process of tightening monetary policy, with more rate hikes to come. Lowe highlighted that the cash rate is too low when compared to current levels of inflation and unemployment. Lowe also stressed the merits of the RBA’s current inflation target in the context of the upcoming review of the Bank. We also note that Lowe’s assessment of the neutral rate was little more guarded than that provided by Deputy Governor Bullock, with the Governor flagging the at least 2.50% level (in nominal terms) that he has referenced on previous occasions, or at least positive in real terms assuming the mid-point of the inflation target range (2.50%) acts as a reasonable estimate of medium-term inflation expectations (Bullock flagged a neutral real rate of 0.5-1.5% yesterday). Lowe went on to note that there is considerable uncertainty around any particular estimate of the neutral real rate.
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com

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