Sharply Cheaper, RBA Hawkish Again On Inflation

ACGBs sit sharply lower (YM -23.0 & XM -13.5) after the RBA surprises the market by lifting the cash rate by 25bp to 3.85% from 3.60%, labelling inflation as still “too high”. RBA dated OIS pricing had only a 14% chance of a 25bp rate hike priced ahead of the decision. At the time of writing, 3-year and 10-year futures were as much as 22bp and 14bp lower respectively after the RBA decision.

• The RBA began the year with a hawkish stance on inflation but softened its stance after monthly CPI data indicated that inflation had peaked. However, the RBA has once again adopted a hawkish stance with the decision statement, stating that “Some further tightening of monetary policy may be required to ensure that inflation returns to target...”.
• RBA dated OIS has shunted 22-32bp higher across meetings with terminal rate expectations lifting to just shy of 4.0% at 3.98%.
• Cash ACGBs are 12-20bp higher after the decision with the AU-US 10-year yield differential +11bp at -7bp.
• Swap rates are 13-22bp higher after the decision with the 3s10s curve 9bp flatter.
• The bills strip bear flattens with pricing -34 to -19 after the decision.
• Elsewhere, more information is trickling out regarding the May 9 budget. The government is focused on providing cost-of-living relief while not providing fiscal stimulus that adds to inflation – The Australian.