Daily Commentary BY THE CURVE TEAM –

Daily Insights – Wages Key to RBA

20th of October, 2021

Wages Still Key to RBA

  • The October minutes stated that the labour market will need to be tighter than it is to meet the inflation target sustainably.
  • By tightening policy now, the RBA believe it would lead to “lower housing prices and credit growth, it would result in fewer jobs and lower wages growth, which would in turn create further distance from the goals of monetary policy – namely, full employment and inflation sustainably within the target range”.
  • There has been no substantial change in the RBA’s rhetoric since covid began.
  • The full minutes are here: https://www.rba.gov.au/monetary-policy/rba-board-minutes/2021/2021-10-05.html

Yield Target Change

  • The RBA changed the borrowing rate on the April 2024 bond to 100 basis points from 25 basis points.
  • The main effect of this is to disincentivise shorting the bond, making it more likely that the target remains at 0.10%.
  • It has been trading as high as 0.16% and been above 0.10% for 7 trading day. It is currently 0.14%.
  • Given this, it is likely the RBA will need to buy the bond to drive the yield back to the target, which would mean it owns the vast majority if not all of the line.

RBNZ Hawkish

  • While the RBA remains dovish despite markets pushing yields higher, in New Zealand there is a hawkish bent.
  • ANZ expect the cash rate in New Zealand to be 2% by August 2022, in line with the recent spike in inflation.

Josh Stewart

Associate - Money Markets