RBA: Interest Rate Decision Is Now A Close Call (AFR)
AFR RBA watcher John Keho writes "inflation remains high but is declining from its peak, leaving a finely balanced interest rate call for the Reserve Bank of Australia board next Tuesday. The odds of an interest rate increase are probably around a 50-50 coin toss for the nine-member RBA board, who will be tempted to hit pause at the current 3.6 per cent cash rate."
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BONDS: NZGBS: Softer Retail Sales Fails To Change The Tone
NZGBs close 3-4bp weaker despite softer than expected Q4 real retail sales suggesting an easing in demand. The inability of the data to sustain a bid likely reflected the cross currents of base effects and some remaining Covid trends. RBNZ’s Chief Economist Conway was also on the wires touting a familiar message on inflation. He did however “see some signs we are at an inflation turning point”, but with “a lot of uncertainty”.
- Today’s move in NZGBs saw the 2-year yield push to a post-RBNZ meeting high (37bp above last Monday’s close) and the 10-year retrace around half of Friday afternoon’s 9bp rally. On a relative basis, NZGBs were slightly stronger versus Australia after last week’s 20bp+ underperformance across the curve. On Friday, the AU-NZ 10-year cash yield differential narrowed to within 3bp of its mid-December low of -83bp, representing a 40bp round-trip since the start of the year.
- Swap rates close 5-6bp higher, implying a widening in swap spreads.
- RBNZ dated OIS closed 2 to 4bp firmer across meetings beyond April with November leading. April meeting pricing held at 39bp of tightening with terminal OCR (Aug-23) at 5.49% (the RBNZ’s peak forecast).
- Without a domestic impetus, the market will turn to U.S. Tsys for guidance ahead of the release of monthly Building Approvals data tomorrow. Australia also releases monthly Private Sector Credit data and further quarterly partials.
RBA: Treasurer Sees Board Member Departures As Opportunity To “Refresh”
Two RBA Board members, Mark Barnaba and Wendy Craik, have said that they won't seek reappointment this year. Treasurer Chalmers has responded to Sky News that this development is an “opportunity to refresh the Reserve Bank Board”, according to The Australian. Barnaba had his term extended a year in August 2022. Chalmers is currently in India for the G20 meetings.
- The Treasurer reiterated on Sunday that a decision regarding the Governorship of the RBA will be made around mid-year after the review is received in March. He said that the decision “will be about who is best placed to take the Bank forward into the future, …” (Sky News)
- There has been a lot of talk about potential changes to the superannuation system in Australia. Chalmers responded that it was not unreasonable to put a cap on tax concessions and the union involvement in superannuation wasn’t necessarily a problem. A number of suggestions have been put to the government which they are currently considering. (The Australian)
RBNZ: Conway Sticks To Post-Meeting Script
RBNZ chief economist Conway reaffirms the messaging seen at the conclusion of last week’s monetary policy meeting, pointing to inflation that is far too high alongside elevated levels of uncertainty re: the economic outlook. He stressed that household spending has been stronger than expected while pointing to forecasts for slower consumption as interest rates rise (which the Bank is starting to see signs of), underscoring the need for further rate hikes which will cool the economy (pointing to the peak 5.50% in the Bank’s OCR track). He also noted that he is unaware of any plans to alter loan-to-value ratio settings when it comes to the mortgage market.
