RBA Dated OIS Has Undergone A Significant Reassessment Since Last RBA Meeting

Since the mid-March RBA Policy Meeting, RBA-dated OIS pricing has undergone a significant reassessment.

• Initially, expectations of easing by year-end had been moderated in tandem with a reduction in anticipated Fed easing, a trend that persisted until this week's FOMC meeting.
• However, the most significant catalyst for the shift in the Australian market was the release of the Q1 CPI figures in late April, which surpassed expectations.
• After the Q1 CPI data release, the anticipated year-end cash rate level rose notably, and so did the expected terminal rate. Before Q1 CPI, the expected terminal rate hovered around the existing cash rate of 4.35%. This outlook was reinforced by the removal of the RBA's explicit tightening bias at the March Policy Meeting.
• Presently, the market is pricing approximately 3bps of easing from an anticipated terminal rate of 4.42%.
• While some market analysts anticipate the RBA to resume its tightening cycle in the coming months, former RBA staffers have told MNI that whether the RBA will need to increase rates again to pull inflation back to target without impacting its already generous timeline remains debatable. (See MNI link)

Figure 1: RBA-Dated OIS Expectations: Terminal Rate Versus End-24

Source: MNI – Market News / Bloomberg