Richer After RBA Policy Decision, RBA Noted Monthly CPI Suggests CPI Moderating

ACGBs (YM +4.0 & XM +4.5) sit 5-6bps richer after the RBA Policy Decision. As widely expected, the cash rate was left unchanged at 4.35%, following last month’s increase. In the statement, the RBA noted that:

• “While the economy has been experiencing a period of below-trend growth”, inflation and housing prices have exceeded projections.
• The Board believed “the risk of prolonged high inflation has risen, justifying the earlier rate hike”.
• Nevertheless, the RBA noted that “the monthly CPI indicator for October suggested that inflation is continuing to moderate”.
• While the impact of recent rate increases is ongoing, uncertainties persist, including global economic trends, the Chinese economic outlook, and domestic factors affecting household consumption.
• The Board emphasised its commitment to returning inflation to target. “Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks.”
• Cash ACGBs are 4-6bps richer following the decision, with the 3/10 curve slightly steeper and the AU-US 10-year yield differential 5bps tighter at +15bps.
• The swaps curve is 4-6bps richer after the decision, with rates 3-4bps lower on the day.
• The bills strip is now richer on the day, with pricing +2 to +5. Late whites/early reds leading.
• RBA-dated OIS pricing is 2-8bps softer across meetings, with Sep’24 leading.