27th September 2024
Key points
- RBA holds as Aussie inflation cools
- Global rate cuts abound
- Yield curve normalisation
- ABE webinar – get the latest
Global Cash Rates & Inflation
- The Reserve Bank of Australia (RBA) Cash Rate now sits at 4.35%pa and the annual inflation rate in the year to August is 2.7%.
- The US cash rate (policy rate) is currently between 4.75%-5.0%pa and the annual inflation rate in the year to August is 2.5%.
- The Bank of England Bank Rate currently sits at 5.0%pa to fight an inflation rate of 2.2% in the year to July
- The European Central Bank Cash Rate (deposit facility) is 3.5%pa, to fight an annual inflation rate of 2.2% in the year to August.
Reserve Bank of Australia Holds
The RBA held the cash rate steady again this week at 4.35%pa for its seventh consecutive meeting.
The decision to hold was largely expected and the messaging emanating from the central bank continues to strike a cautionary tone.
“Policy will need to be sufficiently restrictive until the board is confident that inflation is moving sustainably towards the target range”.
On Wednesday, fresh inflation data was released which revealed the Australian inflation fell to an annual rate of 2.7% in August, down from 3.5% in July.
Global Rate Cuts Abound
In addition to the Federal Reserve’s ‘supersized’ 50 bps rate cut, Sweden’s Riksbank also slashed its key rate by 25 bps, as did the Swiss and Czech Republic’s central banks.
With monetary easing now in full swing across much of Europe and the developed world, it’s clear that the window of opportunity to secure higher interest rate securities is rapidly closing.
Yield Curve Normalisation
Short-term bond yields have started to fall below longer-term yields in the U.S., UK, and now Germany, resulting in a normalisation of the yield curve as markets anticipate an accelerated rate cutting cycle.
An inverted yield curve, where short-term yields surpass long-term yields, has historically predicted most recessions since World War II.
This inversion occurs because market participants anticipate slower economic growth in the future, leading to higher demand for long-term bonds and driving their yields lower relative to short-term ones.
For fixed-income investors, this underscores the need for careful security selection.
The Australian Bond Exchange has a rigorous product approval process in place which is designed to ensure that only quality securities are admitted to quotation on ABE’s trading platform.
For more information, visit our product approval page.
ABE Webinar - Watch the Latest
On Wednesday we spoke with Markus Mueller, co-founder of the Australian Bond Exchange directly from Switzerland, where he provided his latest thoughts on global market developments and the outlook for debt markets. Watch the recording here.
Week Ahead
- Federal Reserve Chairman speech
- Euro Area inflation
- U.S jobs data
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