RBA Considered 25bp Or 50bp, But No Pause

As expected, the February RBA Meeting Minutes provided little new colour to the policy debate given that the Statement on Monetary Policy and Governor Lowe’s testimonies to parliament came after the rate decision. The Minutes did however provide confirmation that the Board considered a 25bp or 50bp interest rate increase earlier this month, but not a pause, an incrementally hawkish development.

• Aussie rate futures are weaker than morning levels, YM -7.0, XM -5.0, but that is at least partly due to weakness in wider global FI markets (mainly NZGBs), with only modest pressure seen post-minutes. Cash ACGBs are 4-6bp higher in yield, flattening, with the AU/U.S. 10-year yield differential at -1bp, 4bp higher than Friday’s close of -5bp.
• Swap flows have added to morning weakness (as noted earlier).
• Bills are 4-9bp softer across the strip with reds leading.
• RBA-dated OIS holds steady at a 92% chance of a 25bp hike, but terminal rate expectations consolidate the break-out above its 4.10-4.22% trading range to sit at ~4.30%.
• All eyes turn now to Q4 WPI tomorrow. Wages have gained importance following the higher-than-expected Q4 CPI print given its closer links to services inflation, an increasing concern for the RBA (factoring into the argument for a 50bp at the Feb meeting).