Daily Commentary BY THE CURVE TEAM –

Daily Insights: RBA Change Tact

18th of August, 2021

RBA Minutes

  • The key point from the minutes was the RBA’s belief that “fiscal policy is a more appropriate instrument than monetary policy for providing support in response to a temporary localised reduction in incomes.”
  • The RBA will not be concerned about the current lockdowns while government support remains, so long as it does not lead to a “significant setback for the economic recovery”.
  • A swift economic bounce back, much like the first half of 2021 is still predicted despite the recent outbreaks. We believe this is far from guaranteed given 2022 will involve living with covid not zero covid.
  • While the RBA expect a strong bounce back from the current lockdowns, it appears they will continue on their current trajectory of $4 billion of bond purchases a week from September to November.
  • In 2020, the RBA loosened policy drastically over the year, despite huge government support. It appears they have finally reached a policy mix they believe is accomodating enough in a weak economy, whereby additional loosening offers too little benefit for the economy to justify it.
  • The full minutes are available here: https://www.rba.gov.au/monetary-policy/rba-board-minutes/2021/2021-08-03.html

Reserve Bank of New Zealand Spanner

  • Five covid cases has been detected in New Zealand, prompting a national three-day lockdown and a four to seven day lockdown for the Auckland and Coromandel area.
  • As a result, a 20 basis points, or 80% of a full 25bp hike is now priced in by markets, down from 30 points.

NAB Primary

  • A drought of primaries and plethora of liquidity resulted in a very strong NAB senior unsecured issue yesterday.
  • NAB printed $2.75 billion of $3.8 billion of bids at the clearing price for a 5 year maturity. There was close to $5bln of bids before the price was revised.
  • The margin came in to +41 from +47 due to strong demand and only a floating version was issued.

Josh Stewart

Associate - Money Markets