Interesting cocktail from the RBA overnight as they moved the needle up on 2024 CPI forecasts but remained firm that 2025/2026 will see a slow descent towards target.

They are putting a lot of emphasis on productivity growth helping unit labor costs down into 2025/2026 and also point to medium-term inflation expectations as the KEY for their decision making. I guess we are all just counting on AI solving the inflation issue here?

The RBA has adopted a classic symmetrical approach “The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the Board is not ruling anything in or out.” .. An approach that could soon be adopted by the Fed if the progress on inflation continues to stall in the US as well.

The market has mostly aligned itself with a symmetrical outcome space for the RBA, but there is still a long way to go on USD rates, especially as officials such as Williams (and Powell at the latest presser) continue to highlight the skewed outcome space in favour of cuts.

 It has not become LESS interesting to see how central banks in Europe respond to the recent Fed/RBA rhetoric with the BoE and the Riksbank reporting this week. Our previews are found here (warning, they are both hawkish relative to market pricing).

Chart 1: RBA pricing is fairly neutral for 2024