MNI:AUSTRALIA MAR TRADE BALANCE A$+5024

The RBA minutes from the March meeting showed that the Board did not discuss a possible change in rates in either direction, as it was “appropriate to leave the cash rate target unchanged” and the data had been “broadly as expected”. Both upside and downside risks to inflation were considered but seen as “a little more even”. Given it is still going to take “some time” for the RBA to feel confident that inflation will return to target, rates are likely to be left at 4.35% for some months.

• There is still a risk that it could take longer than expected for inflation to return to target which would drive inflation expectations higher. This could be driven by demand continuing to exceed supply, disappointing productivity growth and services inflation stickier than expected. Weaker-than-projected consumption resulting in softer growth would result in inflation falling faster.
• Risks overall were seen as “broadly balanced” and so it was “not possible to either rule in or out future changes” in the OCR.
• The RBA continues to monitor global developments, especially inflation, domestic demand and the inflation/labour market outlook.
• Below trend growth driven by soft consumption and negative per capita GDP due to population growth were recognised in the minutes. The output gap is closing “relatively quickly”. It also noted that it was unclear how much the labour market has eased due to “shifting seasonal patterns”.
• The next meeting is on May 7 and will include updated staff projections following Q1 CPI on April 24.

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ACGBs (YM -6.0 & XM -7.5) are little changed after the release of the RBA’s March Meeting Minutes. Notably, the Board members did not consider the option for an interest rate rise. Additional details of the RBA Minutes suggested that it was difficult to either rule in or out future changes in the cash rate.

• ANZ-Indeed job advertisements dropped 1% from a month earlier in March.
• (Dow Jones) Australian house prices continued to climb in March despite the pain of soaring interest rates, rising living costs and poor affordability, with the housing market suffering a severe lack of supply and a time of strong population growth. (See link)
• Cash ACGBs are 2-8bps cheaper, with the AU-US 10-year yield differential at -26bps.
• Swap rates are 5-6bps higher.
• The bills strip has bear-steepened, with pricing flat to -5.
• RBA-dated OIS pricing is 2-4bps firmer for meetings beyond May, with Sep-24 leading. A cumulative 37bps of easing is priced by year-end.
• (AFR, The Economist) In January prices across the rich world rose by 5.7% y/y, down from a peak in late 2022 of 10.7%. Some countries have slain the inflation beast. Others are still in the fight of their lives. Australia tops the ranking. Britain and Canada are not far behind. America is doing better, but even there inflation remains entrenched. (See link)