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VIEW: ANZ: Diminished Hawkishness

RBA

ANZ note they have ran their “RBA Bias Index over the RBA Board statements for June, July and August. The Index illustrates that the RBA’s language has come off the hawkish highs seen in May, when the local tightening cycle began. This is reflective of the softening in hawkish tonality in the RBA statements since then, such as the August statements no longer referring to the removal of “extraordinary monetary support.” We highlighted in a previous note that this could mean the Board is considering reduced monthly increases to the cash rate in the future. However, the Index remains hawkish, as recent statements confirm the Board will take further steps to normalise monetary conditions. We measured the change in monetary policy by looking at the change in the cash rate. The Index provides a relatively good signal of the trajectory of monetary policy, so can help estimate movement over the coming six months.”

  • “Given that the Index is forward looking, it is gesturing towards a cash rate of roughly 3% by the end of 2022 based on the historical relationship.”
  • “Market pricing since May has come closer to our Index, as more aggressive rate hike expectations have unwound. Nevertheless, the market remains ahead of RBA rhetoric. This highlights the disparity between the RBA and markets that has persisted throughout this tightening cycle.”
  • “It’s worth remembering that the market has previously been vindicated in this stance, such as when the RBA backflipped on forward guidance earlier this year when it had suggested policy would not tighten until 2024. But the market may not always be more hawkish than the RBA rhetoric. Indeed, as the tightening cycle extends it would not be a surprise for the market to move to a more dovish outlook.”
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ANZ note they have ran their “RBA Bias Index over the RBA Board statements for June, July and August. The Index illustrates that the RBA’s language has come off the hawkish highs seen in May, when the local tightening cycle began. This is reflective of the softening in hawkish tonality in the RBA statements since then, such as the August statements no longer referring to the removal of “extraordinary monetary support.” We highlighted in a previous note that this could mean the Board is considering reduced monthly increases to the cash rate in the future. However, the Index remains hawkish, as recent statements confirm the Board will take further steps to normalise monetary conditions. We measured the change in monetary policy by looking at the change in the cash rate. The Index provides a relatively good signal of the trajectory of monetary policy, so can help estimate movement over the coming six months.”

  • “Given that the Index is forward looking, it is gesturing towards a cash rate of roughly 3% by the end of 2022 based on the historical relationship.”
  • “Market pricing since May has come closer to our Index, as more aggressive rate hike expectations have unwound. Nevertheless, the market remains ahead of RBA rhetoric. This highlights the disparity between the RBA and markets that has persisted throughout this tightening cycle.”
  • “It’s worth remembering that the market has previously been vindicated in this stance, such as when the RBA backflipped on forward guidance earlier this year when it had suggested policy would not tighten until 2024. But the market may not always be more hawkish than the RBA rhetoric. Indeed, as the tightening cycle extends it would not be a surprise for the market to move to a more dovish outlook.”