US TSY FLOWS: Block Sells: FVM5

The February meeting minutes clarified the discussion around the Board’s decision to cut rates 25bp. It did keep its options open saying that if inflation proved to be sticky it could keep rates at 4.10% “for an extended period” and explicitly stated that it could tighten “policy if the outlook was for inflation to rise materially”. The Board determined though that the risk of holding rates “high for too long” outweighed that of having to remain restrictive for longer but that it didn’t pre-commit them to further easing.

• The meeting statement and Governor Bullock’s press conference were very cautious around future easing. The minutes were consistent with this stating that “members expressed caution about the prospect of further policy easing” as while they were more confident that inflation would return to target, it was “not yet assured”, especially given that the core inflation stayed above the 2.5% mid-point using market rates.
• The Board also implied that Australia may not need to cut rates as much as other countries given that it didn’t increase them as much and unemployment is lower.
• It eased policy because core and wage inflation in Q4 was lower than expected giving it greater confidence that underlying inflation would sustainably return to target and risks to growth, especially private consumption and global demand, were to the downside. There was also some doubt over whether the labour market was as tight as the data imply.
• The arguments for keeping rates unchanged included the risk to inflation from easing too soon. The tight labour market was the “strongest reason” with unemployment rate forecasts revised down. The Board was concerned that it wasn’t “consistent with inflation being at the target”.
• There was also a chance growth could recover faster than expected especially if the negative impact from US policy didn’t materialise. The output gap is also estimated to be positive and unlikely to close assuming market rates.
• While the Board believes policy is restrictive, it notes that credit growth and equity/bond pricing “clouded this conclusion somewhat”.

• The PBOC issued CNY38.2bn of 7-day reverse repo during this morning’s open market operations.
• Today’s maturities CNY318.5bn
• Net liquidity withdrawal CNY280.3bn.
• The PBOC monitors and maintains liquidity in the interbank system through the issuance of reverse repo.
• The CFETS Pledged Repo Deposit Institutions 7 Day Weighted Average Index is at 1.50%, from yesterday’s close of 1.8599.
• China’s overnight interbank repo rate is at 1.75%, from yesterday's close of 1.32%
• China’s 7-day interbank repo rate is at 1.50% down from yesterday's close of 1.8307%

• CHINA PBOC CONDUCTS CNY38.2 BLN VIA 7-DAY REVERSE REPO TUES